What is the ECB thinking?

[Kidlicious]

They left their target interest rate at 2.5%, in effect choosing not to increase the supply of Euros. Are the european economies doing that well, no. Is the Euro falling in value, no. I know, they want to ring the last bit of inflation out of the economy. Why are they so paranoid about inflation?

[Sava]

I'm not informed enough about this topic to make an intelligent post (that usually doesn't stop me anyways) but I'll say this. Even experts make mistakes. Look at the Bush admin. Reducing the deficits and getting surpluses (god forbid) would help the economy much more than some stupid tax cut. But yet they don't do it. The difference in the two situation is that the ECB probably isn't providing pork to anyone.

[HershOstropoler]

Re: What is the ECB thinking?

Originally posted by Kidicious
They left their target interest rate at 2.5%, in effect choosing not to increase the supply of Euros.

The "supply of euros", as measured by M3, is up 8 % year over year (7.3% for M2). I can't see a lack of "euro supply".

[Kidlicious]

HO,

Ok, right. I should have been more specific. They're choosing not to increase the supply of Euros MORE.

[Kidlicious]

Does anyone know how the European financial markets have done since the Euro has been gaining strength against the Dollar?

[HershOstropoler]

I don't see a lack in "euro supply" growth either. M3 growing at 10 % would help... how?

[DAVOUT]

The current rate is slightly higher than inflation. There is no absolute evidence (and at least not from the US experience) that lowering the rates below inflation is the right thing to do in order to help the economy.

[Kidlicious]

Originally posted by DAVOUT
The current rate is slightly higher than inflation. There is no absolute evidence (and at least not from the US experience) that lowering the rates below inflation is the right thing to do in order to help the economy.

I could see why you would be worried that lowering rates wouldn't work if there were danger of a weak Euro, but that's not the case.

[Kidlicious]

Originally posted by HershOstropoler
I don't see a lack in "euro supply" growth either. M3 growing at 10 % would help... how?

More growth.

[DAVOUT]

Originally posted by Kidicious


I could see why you would be worried that lowering rates wouldn't work if there were danger of a weak Euro, but that's not the case.

The Euro is not intrinsically strong, it is rather the US$ which is weak, and it is therefore reasonnable not to fight this apparent strenght.

[HershOstropoler]

Originally posted by Kidicious


More growth.

Well there are a couple steps inbetween M3 growth and real GDP growth. Also, it's just about cycle management.

How does that work in the US? A bit more consumer spending at the expense of an already too low savings rate, and a housing bubble to paper over the cracks. With payback later. It's just that the US economy is so completely messed up that the Fed is desparate to avoid becoming BOJ part deux.

[Kidlicious]

Originally posted by DAVOUT
The Euro is not intrinsically strong, it is rather the US$ which is weak, and it is therefore reasonnable not to fight this apparent strenght.

How are you measuring intrinsic strength? It's also strong against the Yen. The European economy doesn't seem to be growing fast at all. There is one thing that is changing though. The financial markets are booming. If the economy doesn't grow though this will only be temporary. Here's a 6-month chart of the DAX.

[Kidlicious]

Look how much the change in your financial market is affected by the change in the value of your currency. Here is the historical value of the Euro against the Dollar for the last 6 months or so.

2-Dec-02 0.9927
3-Dec-02 0.9968
4-Dec-02 0.9999
5-Dec-02 0.9989
6-Dec-02 1.0081
9-Dec-02 1.0088
10-Dec-02 1.0073
11-Dec-02 1.0083
12-Dec-02 1.0189
13-Dec-02 1.0226
16-Dec-02 1.0210
17-Dec-02 1.0267
18-Dec-02 1.0254
19-Dec-02 1.0217
20-Dec-02 1.0268
23-Dec-02 1.0217
24-Dec-02 1.0305
25-Dec-02 ND
26-Dec-02 1.0358
27-Dec-02 1.0411
30-Dec-02 1.0460
31-Dec-02 1.0485
1-Jan-03 ND
2-Jan-03 1.0361
3-Jan-03 1.0418
6-Jan-03 1.0469
7-Jan-03 1.0419
8-Jan-03 1.0447
9-Jan-03 1.0467
10-Jan-03 1.0535
13-Jan-03 1.0535
14-Jan-03 1.0571
15-Jan-03 1.0576
16-Jan-03 1.0569
17-Jan-03 1.0660
20-Jan-03 ND
21-Jan-03 1.0677
22-Jan-03 1.0729
23-Jan-03 1.0767
24-Jan-03 1.0825
27-Jan-03 1.0838
28-Jan-03 1.0833
29-Jan-03 1.0861
30-Jan-03 1.0776
31-Jan-03 1.0739
3-Feb-03 1.0761
4-Feb-03 1.0875
5-Feb-03 1.0842
6-Feb-03 1.0828
7-Feb-03 1.0801
10-Feb-03 1.0740
11-Feb-03 1.0747
12-Feb-03 1.0716
13-Feb-03 1.0834
14-Feb-03 1.0799
17-Feb-03 ND
18-Feb-03 1.0708
19-Feb-03 1.0744
20-Feb-03 1.0821
21-Feb-03 1.0787
24-Feb-03 1.0783
25-Feb-03 1.0782
26-Feb-03 1.0797
27-Feb-03 1.0763
28-Feb-03 1.0779
3-Mar-03 1.0835
4-Mar-03 1.0883
5-Mar-03 1.0967
6-Mar-03 1.0997
7-Mar-03 1.1014
10-Mar-03 1.1062
11-Mar-03 1.1028
12-Mar-03 1.1023
13-Mar-03 1.0870
14-Mar-03 1.0725
17-Mar-03 1.0606
18-Mar-03 1.0624
19-Mar-03 1.0590
20-Mar-03 1.0613
21-Mar-03 1.0545
24-Mar-03 1.0644
25-Mar-03 1.0673
26-Mar-03 1.0677
27-Mar-03 1.0708
28-Mar-03 1.0762
31-Mar-03 1.0900
1-Apr-03 1.0904
2-Apr-03 1.0765
3-Apr-03 1.0736
4-Apr-03 1.0711
7-Apr-03 1.0621
8-Apr-03 1.0684
9-Apr-03 1.0722
10-Apr-03 1.0803
11-Apr-03 1.0751
14-Apr-03 1.0773
15-Apr-03 1.0801
16-Apr-03 1.0872
17-Apr-03 1.0907
18-Apr-03 1.0882
21-Apr-03 1.0857
22-Apr-03 1.0966
23-Apr-03 1.0949
24-Apr-03 1.1039
25-Apr-03 1.1040
28-Apr-03 1.0999
29-Apr-03 1.1010
30-Apr-03 1.1180
1-May-03 1.1238
2-May-03 1.1200

[*End Is Forever*]

Did anyone else think this thread was about cricket?

[Kidlicious]

Originally posted by HershOstropoler
Well there are a couple steps inbetween M3 growth and real GDP growth. Also, it's just about cycle management.

How does that work in the US? A bit more consumer spending at the expense of an already too low savings rate, and a housing bubble to paper over the cracks. With payback later. It's just that the US economy is so completely messed up that the Fed is desparate to avoid becoming BOJ part deux.

It's the savings rate that kills us. It's the investment rate that saves us. More money means more investment. The housing market is very stable. People don't speculate with their houses, because they live in them. The Fed has already hinted that it would take a more active stance earlier on to prevent BOJ part deux, and that means loose monetary policy.