HeartThais Posted March 4, 2009 Report Share Posted March 4, 2009 http://www.rgemonitor.com/euro-monitor/255812/there_is_no_deflation_threat_in_europe_-_jean_claude_trichet_-_oh_really Not only does the ECB lag the rest of the world in cutting rates, he now thinks there is no deflation threat in Europe. While the rest of the world is frantically trying to avoid the iceberg, Trichet has on the rose-colored glasses. Link to comment Share on other sites More sharing options...
drogon Posted March 5, 2009 Report Share Posted March 5, 2009 Don't know.... He was criticized a lot in the past and proved right...maybe (remember he is not alone in making the decision) the ECB has a better take than most people in view of the long-term. Also remember EU central banks and governments have more power than let's say the federal bank for regulating prices/inflation/deflation. In view of the global downturn I don't think that even if ECB put its rates at 0.5 it would do much good to EU exportations. Wait and see and anyway none of us has the mean to make them change their decision. Link to comment Share on other sites More sharing options...
HeartThais Posted March 5, 2009 Author Report Share Posted March 5, 2009 Don't know....He was criticized a lot in the past and proved right...maybe (remember he is not alone in making the decision) the ECB has a better take than most people in view of the long-term. Trichet thought we were going to enter massive inflation last year. This year, he thought the economies would recover with moderate interest rate cuts and thought the rest of the world was overdoing it only to follow suit a month behind. I'd argue that what seems like the longview of the ECB is really a very strong inflation bias (inherited from Bundesbank) and limited flexibility because of it is not explicitly backed by a taxing authority. Also remember EU central banks and governments have more power than let's say the federal bank for regulating prices/inflation/deflation. Which power is that? The way I see it, the ECB has a very limited ability to change the riskiness of their via things like quantitative easing. It isn't backed by a tax collecting body so if it were to become insolvent, there's no guarantee of how it would be refunded. Also, the ECB has to contend with the actions of national central banks. In view of the global downturn I don't think that even if ECB put its rates at 0.5 it would do much good to EU exportations. I don't think people realize that the largest export market for Germany is other Eurozone countries. Wait and see and anyway none of us has the mean to make them change their decision. True. All we can do is to steer towards or away from Euro. Wait til we see the fallout from Eastern Europe and Austria craters. Link to comment Share on other sites More sharing options...
drogon Posted March 5, 2009 Report Share Posted March 5, 2009 As long as the euro doesn't sink to abysmal level before July then I couldn't care less about what the ECB is doing... After July I always have the ressource to go to another country using a different currency... Link to comment Share on other sites More sharing options...
HeartThais Posted March 5, 2009 Author Report Share Posted March 5, 2009 You should be safe. Well, the Euro did sink from 1.44 to 1.26 in the last 3 months but what are the odds of history repeating itself. 55555 The problem I am pointing out is that Trichet doesn't seem to know there is a problem! Link to comment Share on other sites More sharing options...
Sporty Posted March 6, 2009 Report Share Posted March 6, 2009 The problem I am pointing out is that Trichet doesn't seem to know there is a problem! I agree, for a 6 months or more, I have been wondering if he believes what he says, or is he saying it for politcal or other reasons. Link to comment Share on other sites More sharing options...
Sporty Posted March 6, 2009 Report Share Posted March 6, 2009 As long as the euro doesn't sink to abysmal level before July then I couldn't care less about what the ECB is doing... After July I always have the ressource to go to another country using a different currency... Maybe, someplace that trades in sheep, at least you will not be lonely at night. Link to comment Share on other sites More sharing options...
drogon Posted March 8, 2009 Report Share Posted March 8, 2009 Quantitative easing...magic word we hear more and more often. -> maybe the ECB (don't forget Germany and Austria past experiences) is cautious about the risk of hyperinflation? Because what the US and the UK are currently is printing money....no matter if they wish to call it quantitative easing. Link to comment Share on other sites More sharing options...
HeartThais Posted March 8, 2009 Author Report Share Posted March 8, 2009 That is definitely a reason and I've made that point before too. But rather than "cautious", I'd use the term paranoid or out-of-touch. How else do you look at the world around you and proclaim there are no deflation risks? The term "printing money" is the financial equivalent of the term "socialism" where people use it pejoratively assuming everyone should know why it is evil. So why is it so evil? Link to comment Share on other sites More sharing options...
HeartThais Posted March 9, 2009 Author Report Share Posted March 9, 2009 Btw, I am not defending quantitative easing. I don't know if it will work or not. Most economists seem to admit they don't know either. I'm just responding to your assertion that the ECB has more powers than the Fed or BOE. One thing that is true is that prior to this crisis, the ECB accepted a wider range of collateral for loans than the Fed. In your parlance, when you accept collateral for loans, this is "printing money". All central banks print money and it is a normal everyday CB function. The ECB has printed a lot less new money than the UK/US but it has definitely been keeping the presses running. And based on how far below the 2% inflation target they've just hit (1%) and how fast it is falling, it seems they haven't been printing fast enough. Link to comment Share on other sites More sharing options...
Recommended Posts
Archived
This topic is now archived and is closed to further replies.