European Central Bank

HenryTo · Posted: Mon Mar 17, 2008 10:22 am Post subject: European Central Bank

Rumors swirling around that the governing council of the ECB has been holding emergency meetings:

http://www.forbes.com/markets/feeds/afx/2008/03/17/afx4779928.html

HenryTo · Posted: Wed Mar 19, 2008 9:13 am Post subject:

Traders also pared back their bets on a rate cut from the ECB later this year - thus putting further pressure on global commodity prices:

http://www.bloomberg.com/apps/news?pid=20601068&sid=axVO0ivpYtNE&refer=home

HenryTo · Posted: Sat Apr 05, 2008 9:12 pm Post subject:

ECRI says why ECB is holding back on rate cuts - as inflationary pressures in the Euro Zone is now at a 7 1/2 year high, according to their future inflation gauge of the area:

http://www.businesscycle.com/news/press/1510/

diesel · Posted: Mon Jun 09, 2008 3:31 am Post subject:

Yes, but can higher interest rates quell inflation in a world where excess liquidity goes for top line yield? IMO, the exercise of inflation targeting itself may essentially be impossible or in fact counter productive since raising nominal interest rates will only suck up even more purchasing power and as such act as a magnet for the global flow of funds. Maybe the fed has it correct after all?
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rffrydr · Posted: Sat Jun 28, 2008 10:49 pm Post subject:

....especially when the inflation isn't yours to begin with.
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Suomodo · Posted: Sun Jun 29, 2008 9:07 am Post subject:

HenryTo · Posted: Thu Jul 03, 2008 9:19 am Post subject:

An utter diaster. This does nothing for commodity prices and more importantly, it is now causing the Euro yield curve to be severely inverted - which should exacerbate the banking crisis in Europe in the coming months. Cultural issues aside (to Suomodo's point), what Euroland needs is better labor flexiblity and higher productivity gains. France is definitely part of the problem (35-hour work week, relative lack of entreprenurial acitivity, bloated government, etc.) and that's why Trichet has no hesitation in raising rates and punishing France. Also teaches Spaniards (in the aftermath of their own housing bubble) about "moral harzard," etc.

http://www.iht.com/articles/2008/07/03/business/rates.php

Suomodo · Posted: Thu Jul 03, 2008 12:40 pm Post subject:

Hi Henry ,

As discussed many times ... this is the old German monetary policy of monetary stability, banks deciding on investments and stock exchanges seen as something erratic disturbing the ordenly working of a well planned system.

ECB did nothing to stop DAX et al crashing this year ... nothing.

Labour flexibility in Europe is not possible until the whole social system collapses.... simply there is meanwhile more voters dependent on the social state than workers dependent on theprofits from theit businesses(pensioners, students, single mothers, state employes). They vote out anyone that would want to take them their benefits....

There are huge upheavals anytime when there is discussion about increasing the age for retiring by any even a short time, paying for medical services, etc ...

I think the only purpose of this ECB decision was a show for the public that they do something .... that the people can be happy to have more interest on their savings accounts... That many companies collapse .. who cares

I did not want to believe the hike until it was voted

LaBelleInvestor · Newbie Joined: 14 Jul 2008 Posts: 14

Well the European Central Bank has different priorarties than the Fed.

“Their divergence (between the Fed and the ECB) might be explained by the central banks’ mandates: the ECB is charged with maintaining price stability first, while the Fed aims to achieve low inflation and optimal growth at the same time” (http://blogs.wsj.com/economics/2008/07/03/ecb-and-fed-worlds-apart/).

The ECB most remember that Europe's greatest disaster was Germany's hyper-inflation post WWI. The Fed's was the depression. I'm not trying to spam or anything, but I did write an article saying how the ECB's rate hike will hurt growth in Italy's as well as Spain'c economies. This is because the higher interest rate.

Higher interest rates means that investment goes down. It becomes more expensive to receive a loan because there is a higher interest rate on it. Also higher interest rates not only discourage investment through loans but makes bonds more attractive towards investors because of the alluring rates of return, just another way to hinder private investment. So Italy will have a harder time having any growth with less investment. Oh, and higher interest rates means a less liquid Euro, in other words the ECB is cutting the money supply. A lower money supply results in a stronger Euro. A stronger Euro will hurt exports of countries like Italy.

The European Central Bank isn’t raising interest rates because of solid growth in Europe, but because they are concerned with inflation, which is at 3.5%, the highest in the Euro’s ten year existence. Also remember hyperinflation ruined Germany in the past, making them more concerned with inflation compared to the U.S and other countries who focus more on growth.[/url]

Suomodo · Posted: Mon Jul 14, 2008 10:29 pm Post subject: Re: ECB

HenryTo · Posted: Mon Jul 14, 2008 11:41 pm Post subject:

The Fed had the foresight to be the first mover. That leaves both the Bank of England and the ECB behind the curve - and politically, there is no way they (or anyone) can lower rates now. If the Fed had even hesitated a little bit back in January, the Fed Funds rate would be much higher now and it would be all over as the DJIA would surely be below 10,000 by now. And we would still most likely have a crude oil price of over $140 a barrel, as producers still do not have the credit to (or the stomach) to hedge their production and as investment banks have no ability to take the other side of the long commodity funds.

The rise in commodity prices is a combination of capacity constraints and very loose monetary policies in the emerging markets over the last few years. Regarding the former, the Fed is correct in massively lowering short-term rates (and promising that it would stay low) so as to spur long-term investments. The VCs in Silicon Valley and SoCal are taking the cue and making massive investments in alternative energy and "green" technologies, including solar, wind, cellulosic ethanol, etc. On the "traditional energy" side, we are also seeing massive interest in natural gas exploration off of the Marcellus Shale area, etc. These investments should alleviate capacity contraints going forward. It makes no sense to further hike interest rates given the already declining oil demand here in the US and elsewhere in the OECD area.

LaBelleInvestor · Newbie Joined: 14 Jul 2008 Posts: 14

Suomodo · Posted: Tue Jul 15, 2008 11:14 am Post subject:

LaBelleInvestor,

All good points, I agree

One of the problems in Europe now is the lack of elites ... you have some socialist narrators/politicians. Some remnants of aristocracy, some last grandsons of great German enterpreneur families ... all of them fading...

Their role is taken over by the Sozialstaat ... in the sake of maintaining stability ... social, environmental.. all good excuses for restricting freedom and making the owners of the Sozialstaat (the socialists and beaurocrats) rich and powerful ...

Last strenghold of freedom are the free markets here in Europe ... Noone can influence them .. so most socialist ex-hippies hate them ...

LaBelleInvestor · Newbie Joined: 14 Jul 2008 Posts: 14

hmm very interesting. I've never really come across that before. That's a problem I can never imagine to happen in the U.S. Americans are way to competitive for that to ever happen as well as freedom conscious. Now, that you mention it though, many articles in the economist do refer to what you're saying, but they are subtle.
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