| The Europeans cannot raise interest rates.
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Posted on 07/02/2008 5:33:45 PM PDT by TigerLikesRooster
ECB President, Jean-Claude Trichet, says inflation could 'explode'
Gary Duncan, Economics Editor
The President of the European Central Bank (ECB) said yesterday that inflation could explode without action being taken to quell price pressures. Jean-Claude Trichet's comments cemented expectations that the ECB will press ahead today with a controversial increase in eurozone interest rates.
In his bluntest signal yet that the ECB will defy political pressure, led by President Sarkozy of France, for it to hold fire, Mr Trichet said: “If we are not resolute, there is a risk that inflation will explode. If we act decisively, then we can master the situation.”
His remarks, to the German weekly Die Zeit, left little doubt that the ECB will order a quarter-point rise in eurozone rates to 4.25 per cent.
The latest figures showed that the cost of goods leaving eurozone factories rose more sharply than expected. Producer output prices rose by 1.2 per cent in May, to stand 7.1 per cent up on the same time a year ago. They were driven up by soaring energy costs, which were 4.1 per cent higher in May, and up by 18.2 per cent on a year earlier.
(Excerpt) Read more at business.timesonline.co.uk ...
Ping!
This is positive. Adss more pressure to push the EU Humpty Dumpty off the wall.
The problem is that the Europeans have fewer options than the US. The Europeans cannot raise interest rates.
The simple solution is to revise the tax code, enact the fair tax and watch the prosperity grow.
When the ECB raises rates to fight inflation the American Peso is going to fall further.
| The Europeans cannot raise interest rates.
|
Sounds like the rantings of a responsible central bank. Thank goodness we have the FED in control of the mighty greenback.
I got the advance notification of my stimulus check today. The return address was the IRS so they carefully printed the equivilant “DO NOT DISCARD, THIS IS ABOUT YOUR FREE MONEY” in big read letters on the envelope. Don’t you lOOOVe dis Kuntreee!
Economists these days are madly, insanely, pathologically fascinated by interest rate manipulation. They believe that, with a sufficiently high short-term interest rate target, inflation can be resolved. This rarely works. To solve the worsening inflation, in September 1973 Fed Chairman Arthur Burns went to an average Fed funds rate of 10.78%. It was a flop – the dollar kept falling in value until late 1974. It was a flop in the long term as well, with inflation worsening until the early 1980s. Often, these high interest rate targets effectively cripple the economy, the currency falls even more, and inflation gets worse. Many Asian government found this out the hard way in 1997 and 1998, until they learned to ignore the IMF’s bad advice.
Eventually, central bankers are likely to respond to worsening inflation with rate hikes. The rate hikes will likely cause economic stress, but fail to solve the inflation problem. At this point, the central bankers will blame everything under the sun for the mysterious “stagflation,” except themselves. It will become apparent that the central bankers are much better at producing excuses than solutions. Then the central bankers will be replaced.
Nathan Lewis
I wonder what the Italians and Spainards will think. Italy is on the edge of recession and Spain is going through a meltdown of its real estate market.
Why this is not ever talked about is beyond me. Guess those in the goobermint couldn't tell the truth if their lives depended upon it.
happens every time they raise oil to $145/barrel and they can’t figure out why!
Right my mistake. What I should have said was that they cannot Lower interest rates despite pressures from Washington to do so.
At least once a week, my econ professer(a one eyed, deaf, and spoke in a montone WWI vet) told us not to let anyone BS us. In a paper money economy, the government controls the presses and inflation, when everything goes up in price, it isn’t due to supply and demand. That is about all I learned in that class.
The problem is that neither the MSM nor the conservative media have any conception of the problems that have been created by government overspending, debt creation beyond all reason, and ineffective leadership by those in charge of our ship of state. The left, politically refuses to recognize the problem because the remedies they have for the economy is more spending and debt creation, the conservatives refuse to admit to the problems because the government(Bush), for which they voted has so totally mismanaged the nation during the last 8 years.
It's about perceived power and control of those within government. Common sense is vastly overridden with the notion that 'the government must have its control' and 'Geee-wizzz, I can make a ton of money under the table on this deal / last minute piece of legislation sneaked into a bill. No one will ever know.'
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Why do you suppose the article says they are going to do just that?