[vinnomot] clash-European and the US Federal Reserve bank over monetary!!

Morgan Stanley warns of 'catastrophic event' as ECB fights Federal Reserve  By Ambrose Evans-Pritchard, International Business Editor Last Updated: 1:29am BST 17/06/2008   http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/16/bcnecb116.xml&posted=true&_requestid=258063   The clash between the European Central Bank and the US Federal Reserve over monetary strategy is causing serious strains in the global financial system and could lead to a replay of Europe's exchange rate crisis in the 1990s, a team of bankers has warned. "We see striking similarities between the transatlantic tensions that built up in the early 1990s and those that are accumulating again today. The outcome of the 1992 deadlock was a major currency crisis and a recession in Europe," said a report by Morgan Stanley's European experts.   Jean-Claude Trichet is taking a hard line on rates Just as then, Washington has slashed rates to bail out the banks and prevent an economic hard-landing, while Frankfurt has stuck to its hawkish line - ignoring angry protests from politicians and squeals of pain from Europe's export industry. Indeed, the ECB has let the de facto interest rate - Euribor - rise by over 100 basis points since the credit crisis began. Just as then, the dollar has plummeted far enough to cause worldwide alarm. In August 1992 it fell to 1.35 against the Deutsche Mark: this time it has fallen even further to the equivalent of 1.25. It is potentially worse for Europe this time because the yen and yuan have also fallen to near record lows. So has sterling. More Ambrose Evans-Pritchard ECB in no mood to rescue us from debt Morgan Stanley doubts that Europe's monetary union will break up under pressure, but it warns that corked pressures will have to find release one way or another. This will most likely occur through property slumps and banking purges in the vulnerable countries of the Club Med region and the euro-satellite states of Eastern Europe. "The tensions will not disappear into thin air. They will find fault lines on the periphery of Europe. Painful macro adjustments are likely to take place. Pegs to the euro could be questioned," said the report, written by Eric Chaney, Carlos Caceres, and Pasquale Diana. The point of maximum stress could occur in coming months if the ECB carries out the threat this month by Jean-Claude Trichet to raise rates. It will be worse yet - for Europe - if the Fed backs away from expected tightening. "This could trigger another 'catastrophic' event," warned Morgan Stanley. The markets have priced in two US rates rises later this year following a series of "hawkish" comments by Fed chief Ben Bernanke and other US officials, but this may have been a misjudgment. An article in the Washington Post by veteran columnist Robert Novak suggested that Mr Bernanke is concerned that runaway oil costs will cause a slump in growth, viewing inflation as the lesser threat. He is irked by the ECB's talk of further monetary tightening at such a dangerous juncture.   Ben Bernanke is reported to be irked by the ECB's approach The contrasting approaches in Washington and Frankfurt make some sense. America's flexible structure allows it to adjust quickly to shocks. Europe's more rigid system leaves it with "sticky" prices that take longer to fall back as growth slows. Morgan Stanley says the current account deficits of Spain (10.5pc of GDP), Portugal (10.5pc), and Greece (14pc) would never have been able to reach such extreme levels before the launch of the euro. EMU has shielded them from punishment by the markets, but this has allowed them to store up serious trouble. By contrast, Germany now has a huge surplus of 7.7pc of GDP. The imbalances appear to be getting worse. The latest food and oil spike has pushed eurozone inflation to a record 3.7pc, with big variations by country. Spanish inflation is rising at 4.7pc even though the country is now in the grip of a full-blown property crash. It is still falling further behind Germany. The squeeze required to claw back lost competitiveness will be "politically unpalatable". Morgan Stanley said the biggest risk lies in the arc of countries from the Baltics to the Black Sea where credit growth has been roaring at 40pc to 50pc a year. Current account deficits have reached 23pc of GDP in Latvia, and 22pc in Bulgaria. In Hungary and Romania, over 55pc of household debt is in euros or Swiss francs. Swedish, Austrian, Greek and Italian banks have provided much of the funding for the credit booms. A crunch is looming in 2009 when a wave of maturities fall due. "Could the funding dry up? We think it could," said the bank.  Have your say     Post this story to: del.icio.us | Digg | Newsvine | NowPublic | Reddit | Fark Comments The only way to control fiat currencies is to issue a variable value coinage based on fixed weights of precious metal gold and silver. This coinage would consist of an artistically enhanced copper alloy discs with fixed centre plugs of gold and silver in say 5,10,15gram and one ounce weights. The total weight would be to say four decimal places, this would minimise the possibillity of counterfieting. The value of this currency would be nominated by the prevailing paper notes used by different states, and the daily price of gold and silver at the time the coins were offered for payment. All countries would be required to issue these coins as legal tender, and to accept those of any other country. As greater quantities of gold and silver are found in the territories of third world states, it would help correct the current inbalance between first and third world economies. Posted by Click on June 20, 2008 3:24 PM Report this comment Jean Claude Trichet understands the meaning of terms such as "loose credit" and "debasement of currency". Running away from problems never solves anything, and its hard to argue that more of the same(ie the Fed's approach) will solve anything...it just postpones the day of reckoning. For all the nutcases who have responded to this article wake up to reality. Great reporting Mr Evans Pritchard..please keep it up. Posted by Joseph Docherty on June 20, 2008 8:19 AM Report this comment Jean Claude Trichet understands the meaning of terms such as "loose credit" and "debasement of currency". Running away from problems never solves anything, and its hard to argue that more of the same(ie the Fed's approach) will solve anything...it just postpones the day of reckoning. For all the nutcases who have responded to this article wake up to reality. Great reporting Mr Evans Pritchard..please keep it up. Posted by Joseph Docherty on June 20, 2008 8:18 AM Report this comment Simple really. The policy of the ECB is driven solely by the fortunes of Germany, and all the other countries using the Euro have to accept that their lives are ruled by the Germans. The Irish vote on Lisbon may be the beginning of the end for the Euro as other countries realise the true situation in Europe! Posted by Peter M on June 20, 2008 6:34 AM Report this comment Morgan's are right. Credit deficit woes are endemic but the answer is not a fiscal one. Our current woes are the result of losing the global competition with Japan, Korea but mostly now China and India and no amount of monetary policy will balance the huge disparity of wages between the old western economies and the new eastern ones. Neither the US nor the EU can compete with China and India on productivity, or its derived balance of payments disparity, so blaming each other's monetary policy is just plain dumb. Trying to ignore 3 billion cheap workers and voracious new consumers from China and India is a pointless exercise and unless we can drastically improve our underlying productivity the new kids on the block will beat us on every economic deal. The global economic centre of gravity will complete its current journey across the Pacific from the US to China as it once moved across the Atlantic from Europe to the US. The UK had the power for about 200 years and the US had it for about 100 but the torch has passed to China now so we need to stop whinging and adapt... Posted by paul j. weighell on June 20, 2008 6:33 AM Report this comment Ah....the United States of Europe....27 nations with a population of 490 million was required to compete on a "level" playing field with one nation of 300 million; am I the only one amused by this? Posted by John on June 20, 2008 4:31 AM Report this comment I think JPD was commenting, corectly, on the "socio" aspect of Saeed's post where Saeed said.. 'they never want you to find out about another middle way, that is, Islam and it's model of socio-economic justice'. Middle way? Justice? Are we talking of Islam? Don't make me laugh.. As JDP inferred, Islam is a barbaric & false religion, firmly entrenched in the Middle Ages, that brookes NO disent. Posted by Geoff on June 20, 2008 2:27 AM Report this comment Batten down the hatches people! Posted by Dave on June 20, 2008 1:23 AM Report this comment Trichet may be unconcerned with Italy, Spain, Portugal and France. If the weak sisters want to go it alone, so be it. Maybe a more exclusive club of countries need apply to the EU. The dollar needs to be replaced as the world's reserve currency. Without a suitable alternate currency, real money remains the only option. Watch gold and silver go through the roof in the coming months. Posted by Dominique Audette de la Pointe on June 20, 2008 12:04 AM Report this comment Im really like the telegraph for not censoring their comments because essentially its changes like this that will prevent such events in the future as humanity begins to take responsibility for itself. The problem is money is not connected with real value and goods its been disconnected by the central bank owners and because of that the door was open to allow "them" a total monopoly on setting price and printing money diluting our money which was already in circulation and thus debasing the value of a labor. The fed the bank or England the ECB the IMF are unaccountable! Make them accountable for their crimes against humanity. Posted by Danny on June 19, 2008 11:45 PM Report this comment For over 100 years now the central bankers have blocked the technology of what is called 'Free energy.' This technology has been demonstrated by several hundred researchers and is on it's way within the next year or 2. The bankers blocked research by Tesla in 1906 because the affect would be to produce "Excess Capitol." Our central bankers would rather use their nuclear war fighting "Population reduction technology' on us. Somebody up there must love us. Posted by Patrick Sullivan on June 19, 2008 11:14 PM Report this comment I think it's a pity that an important discussion is getting hijacked by the gold-nuts. Gold has no intrinsic value: in the past decade it has been as low as $180 and as high as $1050. Gold is not a store of value: anyone who bought Gold in 1980 is still looking at a loss of 50% nearly thirty years later. Gold does not avert financial crises. There were serious financial crises in the UK in the 19th century and in the US in the early 20th century. In fact, the US was on the Gold standard when the Depression began. Gold does not avert inflation. There were serious outbreaks of inflation in the 16th and 17th centuries when Gold was the currency of most countries. If the UK returned to the Gold standard today alone, then the exchange rate of the Pound would fluctuate wildly, since the price of Gold is determined by flows of speculative money. If the UK returned to the Gold standard along with our trading partners, then the UK would be locked into a unchanging exchange rate with all these currencies - which would be even worse than belonging to the Euro. Gold is not money. Gold is a useful commodity which you can make money from if you are smart. Over the years I have made a good deal of money from Gold, but I do not imagine that Gold is anything but a speculation. Posted by jon livesey on June 19, 2008 11:00 PM Report this comment Well folks, it appears most (if not all) understand that we have a fiat money system in place, no matter where we live. Keeping this in mind, it appears to a absolutely pointless to praise one currency and condemn the other. A scam is a scam no matter what type of ink you put on a piece of paper. I have the feeling that the "powers that be" wanted to unite Europe and basically dump the US. There are a couple of issues that come about though. First, many people in Europe have started disliking the Euro and the French, Dutch and now the Irish have rejected a more proper union. Making matters worse are the rumblings of the various politicians that are advocating forward integration movements regardless of the Irish vote. That should tell the Irish what politicians think of their vote and the same holds true world-wide. Moreover, I think the people of Europe are starting to realize that they are being misdirected with promises of world prestige and power. Look at the US. It is nothing but a mere "tool" as was the Soviet Union before that. In my estimation it is predicting what the "true powers" want and how they will be able to "justify" these actions to the world that will judge the outcome. I believe the European people are starting to see that the US may be a truly global empire but that this comes at the extremely high price of being nothing more than a puppet. Any comments, ideas etc apreciated. Posted by edo on June 19, 2008 10:18 PM Report this comment I here that Baron Rothschild is ticked that some Rockefeller beat him in pinochle at The Belgium Invitational and that the FED and ECB clashing on monetary strategy is just an extension of this ongoing feud. We can only hope that can resolve their differences before the pretty paper they print is worth less then a half eaten tin of sardines. Pavel Penguin (still using ice cubes for all transactions because they hold their value longer then the pretty pictures on little pieces of paper) Posted by Pavel Penguin on June 19, 2008 8:09 PM Report this comment To the guy who thinks that Germany is taking over the world: Germany is run by the same International Banking Network as everybody else (in the West). However, despite this they have not issued any sub prime loans, though their institutions have bought some of the risk. It is an important high tech manufacturing country whilst the UK has an economy based on speculating and gambling oh and foreign owned football teams. It has a modern train system and a pretty good autobahn network. It is the leader in solar energy production. On the negative side there is a rising difference between rich and poor, huge economic differences between different parts of the country and they are still not allowed to freely investigate their own history. Posted by scousekraut on June 19, 2008 7:51 PM Report this comment Oil shortage? Bank Crisis? Food shortages? I think we are at war gentlemen. Economic war. Its time to ration what we have and act strategically, it is likely to last a long time.It is no coincidence that the present situation allows Bush to open the off shore fields and Monsanto to peddle its products. Is it check mate? Posted by Francis Tobin on June 19, 2008 7:44 PM Report this comment Pretty good discussion guys. This is the first time that a one-for-all euro interest policy will be tested. And what a test it will be. Whilst I'm no American burger-eater supporter I will say that if the ECB was as pro-active as the Fed towards the trade-off between growth versus inflation then the entire pan-European economy would emerge much quicker and stronger from the current and growing malaise than it eventually will. However, that is very clearly not the case. Thus what must be must be. As a private investor I know it will throw up great opportunities. Bring it on. Reality may be painful but ultimately it is good. Posted by Pygmalyon on June 19, 2008 7:29 PM Report this comment As noted by others above, fiat money is a fraud that eventually must end. This applies to all dollars, Euros, pounds, roubles, yuan, rupees, etc. And we have all accepted and used the fraud. Borrowers want cheap money, global masters (who create the fraud) want undeserved profit/control. So... REPUDIATE ALL FIAT "MONEY." Start by printing on banknotes that you spend "This has no real value." And organize to end working for this stuff. Then set a date to repudiate such debts. Meanwhile spend your fiat money for silver coins. (I prefer a design with a Christian cross and a saint slaying a dragon or anti-christ, to prevent others from using our money. Old coins of Europe had such designs.) Silver circulated after 500 BC more than anything else for daily trade. Not only is gold too costly for most daily trade, but much of it was stolen! The top theft in history was ALL gold taken from Americans in 1933 when the Fed Res drove the US federal government to bankruptcy. Fed Res owners who got the gold (ones Wilson dared not mention) still own it. They have been at war since Edomites were defeated by John Hyrcanus and forced to become "Jews" - a group that now includes an outer layer of Khazar (since 8th century) and others - like Stanley Ann Dunham, mother of Barrack Obama! He (and his wife) espouse an end for white America. This will fuel a racial civil war in USA. They want this war and Europe fighting its new aliens during tought times to implement their world government. On Obama see link 86obama_starts_website_ to_counter.htm Given that monetary policy is part of the drive for tight world government (whose first agenda is to silence all exposure of and criticism of the core CABAL - the group Woodrwo Wilson faced), the paper money systems will be enforced by force. To repudiate debt will require effective planning & organizing. aganst the masterminds of the CABAL . (They really are very smart, see Richard Lynn's new study "The Global Bell Cruve." And they tightly control US Congress as in the Mearsheimer & Walt study "The Israel Lobby." And they engineered new "diverse" immigration laws as in "The Culture of Critique" by Kevin MacDonald. And you'll see these names in a study of planned chaos from the pre-World-War I era to today in "The Creature from Jekyll Island: A Second Look at the Federal Reserve" by G Edward Griffin, from American Media. (An office of this was anthraxed!) One more nail in our coffin is to immobilize us! High gasoline prices with vast profits to corporate oil owners) will be replaced by carbon tax (vast profits to carbon traders) on the FALSE IDEA MAN IS THE MAJOR CAUSE OF GLOBAL WARMING, AN EVIL. Firstly, warming vast north areas of Russia Canada, Alaska, Norway etc is not evil. It benfits us (Caucasians). But the major control of this is changing solar output, plus CO2 from volcanoes. Study the "carbon guilt" lie in "Global Warming: The Deniers Series" by DrewHasselback, now online as 38 reports (National Post, Canada) ALSO NOTE THAT THE KYOTO PROTOCOL will not tax "developing" China or India, Indonesia, etc like us! This tax will enslave our folks and blow money on nature reserves often in the third world - run by ecology experts. Posted by Tom Rambler on June 19, 2008 7:04 PM Report this comment Like 1992? I believe the world DID survive 1992 more-or-less intact. Come on folks, this is simply media over-attention. Nothing sells like a looming disaster! Posted by TheDave on June 19, 2008 6:35 PM Report this comment Everybody says that gold and silver are the best forms of money. This is rubbish. Gold and silver traditionally have been owned by the rulers of society who dispersed their silver as money but debased them periodically by changing the measurements. A free society chooses its own money based on the internal values of that society. Posted by Bill Stevens on June 19, 2008 6:33 PM Report this comment "Germany doing politically and financially what they couldn't do militarily." Oh, they could have and would have if it weren't for those interfering Americans. How quickly people forget... Posted by Kevin on June 19, 2008 5:37 PM Report this comment Too many white collar types sitting on their asses pushing "information" around; the "financial services sector" does not add value to an economy. Making loans based on derivatives, selling insurance policies, and other soft market activities do not produce a natural value. Creating, making, selling things that we convert from God's nature to mans' useful purpose makes money! (i.e., agriculture, mining, logging, equipment, making energy, etc.) Slowing down when you're going broke does not make money. We don't need a financial slow down, we need to create real meaningful projects that generate jobs, that puts real money back in the economic system. Posted by Tom Rovere - California on June 19, 2008 5:19 PM Report this comment LADIES AND GENTLEMEN: START BUYING SILVER Posted by Don Biebel on June 19, 2008 5:08 PM Report this comment The government has to bring about a set two regulatory bodies; one to deal with the hedge funds and the other to deal with the banks. The public and the economy have to be protected from the greed and the unscrupulous behaviour of these predators and fraud artists. No one knows the extend of the troubles of the Credit Swaps: "The Sub Prime Meltdown is but the Tip of the Iceberg While attention has been focussed on the relatively tiny US "sub-prime" home mortgage default crisis as the center of the current financial and credit crisis impacting the Anglo-Saxon banking world, a far larger problem is now coming into focus. Sub-prime or high-risk Collateralized Mortgage Obligations, CMOs as they are called, are only the tip of a colossal iceberg of dodgy credits which are beginning to go sour. The next crisis is already beginning in the $62 TRILLION market for Credit Default Swaps. You never heard of them? It's time to take a look, then." link Go on dreaming and leading people to the garden path..LOL Posted by Harris Pohl on June 19, 2008 4:55 PM Report this comment Simply the endgame of the NWO order and their minion, cowardly politicians. What else do we expect. If we are not part of the elites we are part of the problem. They hold us all in contempt and they've got a great puppet in Gordon Brown. Posted by Dean Cavanagh on June 19, 2008 4:44 PM Report this comment A FEW QUOTES ARE IN ORDER. "THE WAY TO CRUSH THE BOURGEOIS IS TO GRIND THEM BETWEEN THE MILLSTONES OF TAXATION AND INFLATIOM" LENIN "SOCIALISTS DEMAND THE USE OF FORCE TO SUSTITUTE THEIR OWN INCLINATIONS FOR THOSE OF THE HUMAN RACE" BASTIAT "THE INHERENT VICE OF CAPITALISM IS THE UNEQUAL SHARING OF BLESSINGS.THE INHERENT BLESSING OF SOCIALISM IS THE EQUAL SHARING OF MISERY" WINSTON CHURCHILL "A GOVERNMENT WHICH ROBS PETER TO PAY PAUL CAN ALWAYS DEPEND ON THE SUPPORT (VOTE) OF PAUL GEORGE BERNARD SHAW. THESE QUOTES TOGETHER WITH THE ENDLESS PRINTING OF FIAT CURRENCY IS THE DIRECTION THE U.S. AND THE EU ARE GOING. Posted by SIDNEY H.KOSANN on June 19, 2008 4:11 PM Report this comment Your analysis needs to consider the erroneous statistics issued by the US Bureau of Labor Statistics. Many economists believe that the unemployment rate including "discouraged workers" exceeds 9 percent and that various adjustments are further skewing the reported unemployment numbers down. Further, other adjustments ("core" vs actual) are seriously understating the inflation rate. Mr. Novak is not a business or economics writer. He has repeatedly issued erroneous analyses and predictions about Fed actions. His poor record is detailed in www.bigpicture.typepad. Posted by Eric Lee on June 19, 2008 3:59 PM Report this comment John Weaver The so-called "deeply corrupt Alice-in Wonderland world that Club Med countries inhabit" boasts some of the strongest banks in Europe. This is in sharp comtrast sub-prime debt-ridden UK and US banks that needed central bank bailouts. I can't comment on US but in UK the banks are in potential melt-down, heralding an Alice-in-Wonderland tea-party to which all are invited whether they like it or not. Stones and glasshouses come to mind. Posted by Peter B on June 19, 2008 3:47 PM Report this comment MANUFACTURED CRISIS......humanity must seek out the architects of destruction! Canada has evil in it's government (they even admit to their attempt to genocide the Indians). Cleanse all governments of evil. Check out my videos to see what's been flying around the canada sky. Indian in the machine youtube videos Posted by Indian in the machine on June 19, 2008 2:16 PM Report this comment I am of mature years, and do not have a mortgage, so the current rates don't affect me. I am not looking to move, so the fluctation in house prices is not a concern. However, I do have a pension fund and savings, and both of those are losing value by the day, do to lower interest rates, and a sharp down turn in the investment world. So it doesn't matter what side of the fence you are on, you are a victim. However, all the greedy money grabbing snakes who worked in the financial institutions have creemed of millions, so they don't need to worry. And now, they are crucifying us all speculating on the price of oil (there is not a supply problem) This is the same greed from the dotcom bubble, it would seem that some people are completely incapable of self regulation, and are driven only by their personal greed, to the detriment of all of us. If people can't regulate themselves, then eventually it will be done for them, and we will get the nanny state after all. Just as a side issue, this country might be a bit better off now, had Gordon brown not sold off our gold reserve at a rock bottom price, and put a bit aside during the boom years. Posted by Ian of Bedfordshire on June 19, 2008 2:06 PM Report this comment Typical of losers to blame the people who do well. I would swap our Scots mafia for the Krauts any day, if it were possible. The deeply corrupt Alice in Wonderland world that the Club Med countries inhabit is about to be shattered, and of course it will all be somebody else's fault. No wonder the Spanish have never stopped double pricing property in both Euros and Pesetas. In their hearts they always knew that they could not live up to the rigors of Northern European economic discipline, it was just a case of getting their hands on as much cheap money as they could before it ran out. Posted by John Weaver on June 19, 2008 2:05 PM Report this comment Welcome to the New World Order. Posted by thewatcher on June 19, 2008 1:40 PM Report this comment Would this not be why Silver/Gold bi-metallic currency was sought by the founders of the once Great Nation? Posted by Johnny B on June 19, 2008 1:36 PM Report this comment Jeff Motsinger, you sir are an idiot. Did Saeed say anything about Islam? The man maybe a perfectly topical and sensible comment, and you went on a tangential rant about Saeed personally being responsible for Saudi Arabia's treatment of women. You've based this purely on Saeed's name, a text-book case of moronic prejudice. Posted by Al on June 19, 2008 1:25 PM Report this comment How long can this scam go on? Posted by Chelsi on June 19, 2008 12:16 PM Report this comment That what is really happening since one year is a calculated madness!!! The goal is a RFID-Chip for everybody for better control by the FED-owner families ( Rockefeller, Rothschild, windsor, Merowinger ...) Regard the last BILDERBERGER conference this year! of the FED dt D Posted by Dr. Armin Widmer on June 19, 2008 11:08 AM Report this comment "Germany now has a huge surplus of 7.7pc of GDP". Yes, arn't they doing well, but then that is what the EU is all about, Germany taking over Europe. Germany doing politically and financially what they couldn't do militarily. Now Germany can buy up even more energy companies in these struggling 'lesser' EU countries. Taking over Europe bit by bit. Posted by Sean Hamerton on June 19, 2008 10:42 AM Report this comment "It's only money" - but the tactic of just printing it when it continues to drift out of your own economy is not remotely sustainable whether you are somewhere in Europe or the mighty US. Posted by simon coulter on June 19, 2008 9:32 AM Report this comment everything unfolding now is the culmination of greed, corruption, greed,lies,more greed, just to line the pockets of the nwo,so they can have there so called global power and to hell with the rest of us,you reep what you sow, mother earth is changing fast!! and when the so called correction comes it wont just be the money changing, and the dark will face what they are dark, enjoy your next life people of greed and lust, i am that i am light!! michael of nabadon. Posted by lightworker on June 19, 2008 9:19 AM Report this comment A lot of coments are catastrofic, people should buy a small percentage of their savings in gold and silver. Cash will be king in 2009 and 2010 because of credit crisis. Oportunities to make money will be in a lot of investments like real estate at 20% of todays prices in London, cheap bank stocks at less than 4 years earnings (once they solve problems) like Citibank, Bank of America. Not so cheap bank stocks like HSBC and JP Morgan Chase that are in a good financial position and will buy at great discounts financial jewels from troubled financial institutions. Affordable housing prices will bust young europeans to work a lot and make money to buy a condo, the same in expensive cities in the US, lack of opportunity to buy real estate destroys the most basic step of capitalisim. If the euro dissapears it would be better for a porcentage of europeans who would otherwise be submited to huge confiscation via taxation and bad money backed by fiscal irresponsability of politicians, and some countries would be well off like Ireland. Posted by fernando from mexico city on June 19, 2008 8:09 AM Report this comment Central Banking has been the undoing of every great Society. Central Banking has been the creator of the worst wars and recessions ever. Centralisation only serves the few over the many. It will fail and must fail. Posted by Ian on June 19, 2008 7:41 AM Report this comment Oh, what a "FOTO" for Mr. Jean Claude Triche!! A very, very freemason one, just full of messages and signs.. Aren't they ashamed?? Too much is too much, in the late years we are forces to see their HORRIBLE "fotos".. Now we have internet, e-mail, URLs, please monsieurs freemasons, make a less use of the newspapers for your global comunication. Advice: don't let the kids watch this! Posted by DoriM. on June 19, 2008 7:36 AM Report this comment I've heard the arguments against fixing money to a particular precious metal, but why not fix it to a group/portfolio of fairly fixed supply, "non-hoardable" commodities. If the portfolio is diverse enough, replacing a single item that is no longer in fixed supply with another that is will not change the value of the portfolio, etc. Posted by David on June 19, 2008 2:29 AM Report this comment The bottom line is that the ruling families that own the Federal Reserve (Rothschild- Rockefeller's etc.) must give up ownership of the Fed and return the power to issue the currency back to the American people i.e. CONGRESS, as stated in Article I sec 8 of the Constitution. Everything else is horse feathers. Posted by Clint Fuller on June 19, 2008 2:05 AM Report this comment italics off In the first quarter of 2008, the U.S. gov increased debt by 165 Billion--that's about $550 per human in America. Posted by Jeff Motsinger on June 19, 2008 1:54 AM Report this comment To Saaed: How exactly do you categorize enslaving women and hiding them away from the world to keep them "pure" for your sordid marital pleasures "socio-economic justice". If there is one system that is corrupt it is not capitalism nor communism. It is in fact Islam. Anyway do you actually believe the nonsense you've graced this page with? If anyone is being brainwashed and "distracted" it is the Muslim world where you're being kept in poverty and made to believe the west is to blame, while your so-called governments wallow in obscene wealth. Posted by JPD on June 19, 2008 1:49 AM Report this comment Throughout history Fiat Currencies has been a total disaster. But then again no one seems to think about their grandsons and daughters. If Ron Paul does not win in America, America and the whole "Fiat World" are doomed. Obama and McCain are "Fortune 100" candidates and Ron Paul is not. That is why they cut Paul short in the debates. Posted by Dr Silver Goldstien on June 19, 2008 1:41 AM Report this comment On a leaked recording of a party meeting in May, a month after his government won a second term in office, Mr Gyurcsany said only "divine providence, an abundance of cash in the world economy and hundreds of tricks""We lied in the morning, and we lied in the evening. There is not much choice, because we screwed up. Not a little, a lot. An "honest" politician's confessions to the inner circle of the power, only resulted in the riots of Budapest during 2006. However, due to the current stifling rules of competition, the direct results of which are evident in the prevalent paucity of thought and bankruptcy of ideas , none seem to understand that history suffers from the curse of dimensionality, hence, it is an all too easy concept to deduce, that; after forecasts heralding the Enron collapse, the correction was an inevitable, and elegant consequence of the creative financial instruments that bordered fraud. Although the correction was not allowed, and the wars of choice, were set in motion, to inflate the markets, which in turn carried on their creative approach in search of "unusual returns". Further, the rigged markets were encouraged with bigger slices of tax cuts, that inflated the already burgeoning money markets. Alas, the notions of Helicopter Ben dropping bundles of notes, has only devalued the fiat currency that has come to ransom the planet. Hence, Morgan Stanley, is only reinforcing the empty threats of Helicopter Ben, to further cut the interest rates. Fact that any further moves in the direction of cuts will only result in the ludicrous notion of ; interest payments to the borrowers, somehow is going amiss in the arguments of economic warfare that is being bandied around in the phony threat posture adopted by the Federal Reserve. Let us face it; Credit Default Swaps are kicking in, with the additional looming disaster of foreclosures, which are for overvalued and over amortized assets, as well as the panicked investors rushing from bubbles to bubbles, akin to the hill billy hicks on their biannual visit to any burlesque house, there is no way to run to from the corrections unfolding. War did not work, inflation of the market did not work, and now, the great and good are bumbling around and prescribing the same nostrums in the hops of getting the traction needed to get of the mess of their own making. These are reminiscent of yea olde apothecaries, and their leaches, and blood letting, never mind it has not worked, apply the nostrum and the malaise will blow over. In short; blow it out of your elbow, cutting rates any further, will only make the correction even more brutal, and longer lasting, as Mr Gyurcsany had understood in 2006. Posted by W. Smith on June 19, 2008 1:33 AM Report this comment Some of the pro-dollar posters here are absolute nutjobs. As a working-class American nearing retirement, I watch in dismay as the Fed pumps HUNDREDS OF BILLIONS of dollars of "liquidity" into the banking system, accepting as collateral mortgage-backed securities of dubious value. The American economy is rigged with bogus statistics and unemployment and inflation are about twice as high as the official figures (see Kevin Phillips' recent article in Harpers at link). I would much rather have euros or Swiss Franks than dollars of dubious value! Posted by Frank Impudicus on June 19, 2008 1:22 AM Report this comment It is time for the Labour Government in the UK to stop wasting money on the EU; Africa; Afghanistan; Iraq and immigrant social welfare and start to look after its hard working indigenous residents, who are pig sick at all the waste money on issues that will drive us all deeper in debt. Posted by Christopher Smih on June 19, 2008 1:21 AM Report this comment It was foolish to allow private banks to control our currencies. The US constitution forbids it. Yet for decades the US government has been in a state of rebellion against the constitution; aided by the media to convince the sheep that everything was copasetic. the traitors have now bled us dry. If you want to understand our crisis, don't look at figures or estimates. that is propaganda. look for a rope instead. Posted by James on June 19, 2008 1:05 AM Report this comment I find it incredible that none of you gentlemen appear to have the slightest grasp of the essential difference between money and debt. I suggest you consider educating yourself by reading the seminal work of Ellen Hodgson Brown. link Best regards. Posted by Pete on June 19, 2008 12:53 AM Report this comment Gold has proven itself to be the only true way to store and protect wealth. The Federal Reserve is a private corporation masquerading as a government entity and acts for it's shareholders. America needs to control it's own central bank to control her destiny. This is America's number one problem. Posted by Brian Crozier on June 19, 2008 12:40 AM Report this comment Saeed, I note that you have been ignored. However, I think you are spot on. Everything is engineered, everything.lol Posted by Carl Jones on June 19, 2008 12:20 AM Report this comment Crustofthematter, Woodrow Wilson was also blackmailed by a prominate attorney named Samuel Untermeyer. Read the book When the Cheering Stopped. (i forget the authoers name) but within the first 100 pages you will read of how Woodrow Wilson was made a puppet and the threat of his filandering while married and a university professor would have earned him the publics ire back then. All the presidents since Woodrow Wilson have had skeletons in the closet and have done what they are told to do or else it would seem. Posted by Andre on June 19, 2008 12:05 AM Report this comment The writing is on the wall, and while the timing is unknown (2-6 years?), the endgame will clearly lead to the last man (currency) standing: gold and silver. Posted by US Naureboy on June 19, 2008 12:01 AM Report this comment Monkey face bush ,,treason??? Posted by bruce on June 18, 2008 11:21 PM Report this comment Oh Dear, the Dollars in the Toilet, and like any good Huckster would. the Ponzi Barons are now trying to pressure others into helping clean that toilet. Expect to see more scare tactics from Uncle. Posted by Fanakapan on June 18, 2008 11:09 PM Report this comment It is strange that these wonder kids of monetary policy don't have a clue about the fact that, as history clearly demonstrates, every Fiat Monetary System fails. Fiat Systems have a terminal life- span do to the fact that every single "dollar" or fiat note must be "borrowed" into existence. Since the entire circulation of the currency is totally and absolutely dependent upon debt for its creation and expansion there comes a time when the economy can no longer sustain the debt-servicing requirements that burdens the productivity of the economy. It has happened in a similar manner time and time again yet, these facts are all but ignored by the blind Central Bankers of the world. Since it is a mathematical impossibility for such a system to be maintained it would appear that such a fact would be recognized and measures taken to reinstate sound, truly sound monetary policy that will restrain the excesses of government mindless expansionism. Posted by Republicae on June 18, 2008 10:48 PM Report this comment The $ is the currency to get into. Posted by Mike on June 18, 2008 10:42 PM Report this comment Sorry, I don't get it. The euro is increasing in value and the pound is going down. What do you prefer? 1) Savings that increase in value, or 2) savings that fall in value? Posted by A monk of great renown on June 18, 2008 10:13 PM Report this comment I'm hungry. I want some candy. Posted by Gary on June 18, 2008 10:03 PM Report this comment Orthodox tight money & balanced budget economic policies will just bring Stagflation. Think bigger. Fear certainly is on the rise among bankers and bank stock holders, here. Quite naturally, they fall back on the same orthodox policies that ruled the Chancellor of the Exchequer in Britain's "Locust Years", after World War I. But the world is now more dominated by energy now. None on this long board, stress the need to find cheaper energy alternatives and require conservation. None on this long board relate the problems to America's miserable President and his miserably expensive war in Iraq. You all blame Bernanke. He is just protecting his buddies. That is exactly what the Federal Reserve was setup for him to do. And he must in a Presidential Election year, help prevent against a Crash and a rise in unemployment. So, why isn't this Scottish bank mentioning these things, because they are far too orthodox and lack enough vision to see the other things that must be done. 1) Make Bush stop this stupid war of imperialism against Iraq. Make America cut back on all its world-wide bases. DO you have any idea how much energy it takes to make a war on a country on the other side of the Globe. 2) Require energy efficiency and conservation. From rich people, too. No more Big American Tank-Cars should be allowed on the planet. 3) America must pursue listen to the needs of the planet. It must retire its mad individualism. It must promote public transportation. 4) Public works programs are needed. Let working people have a decent job. That will pick up the economy. 4) Tax the very rich globally. Give them nowhere to hide their money. They can afford to help the world get out of this mess. They are the ones who profited most from it. That's a start. My website has a lot more to offer public policy-makers who want to make a dent in the current problems, the biggest of which is using failed past policies to solve new, global problems. Posted by William Schmidt, Ph.D. on June 18, 2008 9:35 PM Report this comment Orthodox tight money & balanced budget economic policies will just bring Stagflation. Think bigger. Fear certainly is on the rise among bankers and bank stock holders, here. Quite naturally, they fall back on the same orthodox policies that ruled the Chancellor of the Exchequer in Britain's "Locust Years", after World War I. But the world is now more dominated by energy now. None on this long board, stress the need to find cheaper energy alternatives and require conservation. None on this long board relate the problems to America's miserable President and his miserably expensive war in Iraq. You all blame Bernanke. He is just protecting his buddies. That is exactly what the Federal Reserve was setup for him to do. And he must in a Presidential Election year, help prevent against a Crash and a rise in unemployment. So, why isn't this Scottish bank mentioning these things, because they are far too orthodox and lack enough vision to see the other things that must be done. 1) Make Bush stop this stupid war of imperialism against Iraq. Make America cut back on all its world-wide bases. DO you have any idea how much energy it takes to make a war on a country on the other side of the Globe. 2) Require energy efficiency and conservation. From rich people, too. No more Big American Tank-Cars should be allowed on the planet. 3) America must pursue listen to the needs of the planet. It must retire its mad individualism. It must promote public transportation. 4) Public works programs are needed. Let working people have a decent job. That will pick up the economy. 4) Tax the very rich globally. Give them nowhere to hide their money. They can afford to help the world get out of this mess. They are the ones who profited most from it. That's a start. My website has a lot more to offer public policy-makers who want to make a dent in the current problems, the biggest of which is using failed past policies to solve new, global problems. Posted by William Schmidt, Ph.D. on June 18, 2008 9:21 PM Report this comment WHY BASHING THE FRENCH AND THE GERMANS,?BRITTONS SEEMED LOST WITH THEIR POUNDS! they want euro death! poor people!in eurozone we re proud to have the new world currency! Posted by lionel on June 18, 2008 9:19 PM Report this comment You Brits are more delusional by each day! Who is loosing the war? You the British with GBP Piece of shit! Posted by OhoHoH on June 18, 2008 9:13 PM Report this comment The only people who have benefited from the Federal Reserve interest rate cut (5.25% to 2%) are borrowers with Home equity credit lines. With roughly $ 1 trillion outstanding the run rate savings is about $30 billion. U.S. credit card rates have not come down. Mortgage rates have stayed the same because of spread widening. U.S. savers ($3.5 Trillion in money market funds) have lost roughly $100 Billion in income. On balance interest rate cuts have hurt not helped your average American. The true beneficiaries of Benny's ( Wall streets favorite lap dog)largesse are the Investment banks levered 25 to 1 and the commercial banks with in excess of 1 Trillion in outstanding asset backed commercial paper. Benny is bailing out the levered up pigs on the backs of American savers. In the process he is destroying our currency. When he leaves the central bank I am sure he will receive a Wall Street compensation package from his buddies. Posted by Roger on June 18, 2008 7:58 PM Report this comment The only people who have benefited from the Federal Reserve interest rate cut (5.25% to 2%) are borrowers with Home equity credit lines. With roughly $ 1 trillion outstanding the run rate savings is about $30 billion. U.S. credit card rates have not come down. Mortgage rates have stayed the same because of spread widening. U.S. savers ($3.5 Trillion in money market funds) have lost roughly $100 Billion in income. On balance interest rate cuts have hurt not helped your average American. The true beneficiaries of Benny's ( Wall streets favorite lap dog)largesse are the Investment banks levered 25 to 1 and the commercial banks with in excess of 1 Trillion in outstanding asset backed commercial paper. Benny is bailing out the levered up pigs on the backs of American savers. In the process he is destroying our currency. When he leaves the central bank I am sure he will receive a Wall Street compensation package from his buddies. Posted by Roger on June 18, 2008 7:56 PM Report this comment Thomas, You asked... "If to raise interest rates is hawkish, then to lower or slash interest rates is what?" - dovish Posted by Rob S. on June 18, 2008 5:26 PM Report this comment The US cannot simply try to inflate its way out of USD-denominated debt: if it does not raise rates to increase confidence in the USD the world will look for another currency, probably the "barrel" (of oil) not the EUR, and the US will have done to the USD what it did to the GBP during the Suez crisis. (For those who don't know, the US sold Sterling until the UK was forced to change its foreign policy, thus undermining sterling forever as a reserve currency.) Posted by Alan, London on June 18, 2008 1:46 PM Report this comment European Monetary Union will never work without BOTH political and economic union which will never happen. Posted by cww, Suffolk on June 18, 2008 10:10 AM Report this comment In Dubai we now have 78% house price inflation as the petrodollars flow this way and interest rates are pegged to the dollar, this is lunacy but it will go further as rates go lower, see this post: link Posted by Peter on June 18, 2008 9:31 AM Report this comment With the fear of some members of the Euro zone attempting to exit - just as Sterling left the EMU 16 years ago, the turmoil in the currency market promises to be severe. It's taken a long time to get here, but Gordon Brown's decision that Sterling should not be swapped for the Euro looks wiser by the day. If the UK is headed for a slump, we need manoeuverability. A few US dollars under the bed would also be wise. Posted by protogodzilla on June 18, 2008 8:37 AM Report this comment Unfortunately, the Federal Reserve has precipitated this disaster by believing that slashing the base rate could bail out the property bubble. It couldn't and it hasn't. The BoE has foolishly followed the Fed's lead. There is going to be a tightening of credit worldwide until all these debts are paid off. That this credit tightening comes at a time of rampant food and fuel price rises leaves no scope whatsoever for rate cuts. The fools at the Fed should have known this. They have created the problem by devaluing the dollar. Posted by Paul, Coventry on June 18, 2008 7:59 AM Report this comment A quote from Woodrow Wilson, the president of US who actually helped restart this system of FIAT money. More amazing is the fact that this is a quote from the year the Federal Reserve Act was passed. "Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States, in the Field of commerce and manufacture, are afraid of something. They know that there is a power somewhere -- so organized, so subtle, so watchful, so interlocked, so complete, so pervasive -- that they better not speak above their breath when they speak in condemnation of it." - Woodrow Wilson Posted by Crustofthematter on June 18, 2008 7:57 AM Report this comment If to raise interest rates is hawkish, then to lower or slash interest rates is what? Posted by Thomas Ackerman on June 18, 2008 6:05 AM Report this comment HAHA. Well, as per: link It appears that the end-all, be-all of unified currencies (i.e. ECB, euro) is still only backed by the state in which it is produced. This is no big surprise, the EU invited, for example, the French to a party where looking cool and not smelling bad were a prerequisite. So, while Germany holds up the rest of Europe, a split seems inevitable if the financially weaker countries continue to under perform. Note that Germany's fiscal and monetary policy is very similar to the mid-1900's policy in the US. Only post 1970's-80's did the US consumer begin to spend far more than they could afford, and this runaway condition was embraced by all parties concerned (indeed, the Europeans were quite happy to buy those securities that they knew were not-so-secure at all). IMHO, this crisis will blow over because the dollar can still push world markets around... the EU never had this luxury. All joking aside, if we want to pull ourselves out of this mess, we'd better notch one up on the old belt, or force a true standard for monetization such that there is no difference between a euro printed in germany vs. one from spain. Posted by tanginator on June 18, 2008 5:56 AM Report this comment Stock up on gold and silver to prepare for the crash that RBS is warning its clients about today, do not dally about it, see: link Posted by Peter on June 18, 2008 4:13 AM Report this comment "Surprisingly, I see nobody is blaming Fiat Currencies for the total disaster. " Of course you don't read about that. It is the central bankers product and politicians love fiat money. And media tends to be in bed with the PTB, so who is left to blow the whistle? Just look at how Ron Paul was treated by media during his compaign. Everytime it was his turn to speak, tv shows would interrups for comments, go to commercial etc. In the end we'll see gold and silver regain their status as money. Stock up now while it is still dirt cheap. (Especially silver) Posted by Micki on June 18, 2008 1:36 AM Report this comment There are a couple of areas where it is pretty much the existence of the Euro which is causing problems. First, countries which previously had weak currencies can now borrow much more cheaply in Euros, so they do. Across the Euro area, the accumulated debt averages 66% of GDP. By contrast, that of the UK is 43%. Similarly, countries whose trade deficit was constrained by threats to their currencies exchange rates can now run trade deficits without limit. Spain, Portugal and Greece have trade deficits in the 10-15% range. In the UK, we worry about a deficit of 4%. But there is another factor I don't see mentioned much. Some countries may now be trapped in the Euro, no matter what they would prefer. After ten years they have issued a good deal of debt in Euros, so if they left the Euro so as to have a weaker currency to boost their exports, the flip side would be that their Euro-denominated debt, and the interest they pay on it would become that much more expensive for them. This is one significant difference to 1992. Back then, the countries that left the ERM still had debt denominated in their own currency, so a devaluation had no net effect on debt levels. Euro area countries that run into real trouble won't have too many good choices. Posted by jon livesey on June 18, 2008 1:19 AM Report this comment Addendum to Comments Posted by Chris on June 17, 2008 8:18 AM: He is spot on about what is coming next - global government and currency. Watch for communism to rear it's ugly head, and Karl Marx's "Communist Manifesto" to be implemented in the North American Union and the new currency (The Amero). The 'powers that be' keeps people in two states 'fear and euphoria' through their terrorism and boom/bust cycles, respectively. And when capitalism fails communism is re-introduced just as communism became popular in the 1930s great depression years. In this machination the 'powers-that-be' keep people confused and labouring for them, and they never want you to find out about another middle way, that is, Islam and it's model of socio-economic justice. Perhaps that is the reason why the 'powers-that-be' had created a new enemy in Islam to keep people distracted. And because people have been dumped-down through the public education system and entertained thus far, they did not realise what size of the machination and chicanery that was at work. Perhaps the only way human nature works is when things get a little uncomfortable humans wake up and begin to ask questions. Watch for WW III between 2009-2014 as a way to distract the masses, and then peace will be presented in the form of a global government with the inaugeration of a global leader, emerging from our greatest ally in the Middle-East. Then everyone will realise for what and for whom we have all been toiling for the past 233 years. It was all a grand masterplan, and we were just 'pawns in the game'. Posted by Saeed on June 17, 2008 11:14 PM Report this comment Although the Fed Rate has dropped I believe that the mortgage rates have increased. The Fed Reserve controls a single rate, the one that banks loan to each other. Posted by Trevor on June 17, 2008 6:05 PM Report this comment I think that the ECB should pursue a tough stand on inflation in order to protect the value of hard earned money . The speculation we have seen and are seeing is the clear enemy to lower and middle class people . What is the alternative : look up or better down to the States ? Bubble after bubble which only benefits few . The US exported a New Market bubble , a Housing / Subprime bubble , a dollar crash etc. etc. affecting the whole world . We have seen the ENRON fraud , the Rating fraud going hand in hand with subprime . Come on USA . .. you are playing foul game . What are you exporting ? US policy is deliberatly tolerating inflation ....everything they do affects the world so by exporting inflation , the world has to shoulder a good part of the damage . Recently on BBC's Hardtalk a conservative US hawk who was on Reagan's administration said a few weeks ago more or less : What's wrong with inflation ? The world sends us very good goods and we give them worthless green money paper in exchange . We have a money making machine that does not stop . This guy did not care about the good work of hard working people . It was absolutely cynical . These type of people create only instabilty and misery . The ECB's decision is not only a practical decision but a decision of moral . Also the creation of proper European rating agencies goes into the right direction in order to be able to distinguish between US subprime carbage and top financial products ..as the US is unable to. In the US , it seems , some people have lost touch with reality or cannot they distinguish anymore between a Hollywood movie and reality ? Posted by A German in Spain on June 17, 2008 5:55 PM Report this comment There is a prevailing ignorance concerning the euro currency union which is annoyingly persistent in these postings. That is the notion that somehow German economic success has taken place in spite of the southern countries, and that had they not been there, then German and northern success would have been all the greater. This is ignorance of the first degree and the peddling of this misinformation suggests a sinister attempt to rubbish the euro despite its glaring success. The fact is that Spain, Greece and the other countries have contributed to German success. Their presence in the currency union was necessary for such success to have taken place. Without their membership, against whom or what could the German economy have progressed in order to achieve such success? Naturally, as they were far from stupid, the founding fathers of the euro foresaw this and all potential members, north and south, accepted it. In order to compensate for this inevitable and clearly forseen economic consequence of monetary union, regional assistance was beefed up and enshrined in the Lisbon Treaty. Yet somehow there is a depressingly stubborn mental block prevalent among many contributors to these posting, not to mention the writers themselves, who persistently point to the regional imbalances as a sign that the single currency is in terminal decline. Instead of peddling such nonsense, why don't these people just come clean and admit it? They hate and fear the euro because it is a runaway success. And because on the one hand it is a sign of the global resurgence of historical enemies, and on the other it is the catalyst that has caused previously weaker and "less deserving" nations to leap ahead. Posted by Peter B on June 17, 2008 3:49 PM Report this comment Fiat Currency. Watch "The Money Masters" on the internet. It explains all. Posted by K Taylor on June 17, 2008 3:15 PM Report this comment We are heading for massive civil unrest in parts of Europe. The " fault line" in Europe is along the Rhine and will burst apart. Unemployment will be the most discussed topic. The US will suffer but will respond; Europe will be ungovernable. Posted by Julian Smith on June 17, 2008 3:02 PM Report this comment The real problem is having a fiat currency which allows bankers and politicians to rob us blind through inflation. We need to have sound money to prevent this. Central banks on both sides of the pond are controlled by the same people so just treating the symptom will never cure the illness. This whole ECB Fed debate is contrived to arrive at a predetermined result, a step closer to a global government, a global(fiat) currency and with an controlling elite. I don't recall electing bankers to run the world. Rooting out the central bankers and taking back the issuing of money , backed by solid reserves is the only solution. Posted by Chris on June 17, 2008 2:12 PM Report this comment Surprisingly, I see nobody is blaming Fiat Currencies for the total disaster. Competing interests all trying to gain advantage for their particular fiat currency can never succeed. Time to go back to Salt as a currency, or maybe seashells. A new workable gold/silver (0r some timeless thing) Standard is the only way to keep them all honest. Posted by Graham Reinders on June 17, 2008 12:41 PM Report this comment Love the commentators. Much more revealing about themselves than the article, which is spot on. More discipline! More pain! Right on. I suppose the commentators feel (a) they are innocent of any poor financial decisions themselves and therefore feel free to give lessons in austerity to others or (b) this is another manifestation of Teutonic or maybe Anglo-Saxon racism against the darker skinned and irresponsible people of the Mediterranean (Club Med--so clever!) or (c) perhaps the kind of economic ignorance that led to the Great Depression or (d) the usual over-shooting, now to the downside, of the great wisdom of the crowds or (e) class resentment against, oh, the Americans, maybe the financial and political elite, or, really, anyone, someone, who can be blamed for the credit crisis that everyone had a hand in or (f) the usual bitterness and paranoia that characterizes so much of democratic discourse. Maybe all of the above. In any case, good luck with your fiscal tightening and restraint. Posted by Melancholy Korean on June 17, 2008 12:19 PM Report this comment The real question here is whether headline inflation will indeed feed into core inflation. If all economic agents (companies, unions) expect this to happen than the ECB may have a problem. And it's announcement was a warning shot to everyone involved. Obvioulsy there are risks in this policy. A rate hike next month would raise the value of the euro further (good for price stability because of lower import prices) and put pressure on the dollar (bad for price stability as a falling dollar automatically translates into higher oil prices, and exactly this happened after Trichet's remarks). On the other hand one should see that market rates for money are already one percentage point above official interest rates, so a hike may in real terms may not make such a difference really after all. For the wider relationship in the Eurozone the widening gap between Club Med and "Greater Germany" will indeed be a problem. The south must deflate to regain its competitiveness against the north. But inflation obviously also helps all those mortgage owners who have negative equity. The Fed is pursuing the same policy of keeping nominal property prices stable. So a high level of inflation may be bad for exporters, but it is good for borrowers. I would also not expect Club Med to leave the EU. But who could foresee the future? And what if Ireland's membership in the EU is suspended (as the German foreign minister had suggested)? Posted by Ismail on June 17, 2008 12:19 PM Report this comment And all of this because of the purblind adherence to a currency which has no fiscal reality, as it never had, and the resolute stubborness to preserve the "European dream", come what may. Yes, peripheral countries may suffer the horrors of serious economic crisis but as long as we keep the Euro and keep our members on board all is well with the world. It an arrogance unsurpassed in modern politics. Posted by Peter the Great on June 17, 2008 11:41 AM Report this comment If anyone can convince me that they will look after the euro and not allow politicians to debase it, that person is Mr Trichet (in the same way that I trust Mervyn King to do a better job than Alistair Darling). My problem with the euro is not to do with economics but the political consequences. Of course, with interest rates 'one size won't fit all' - it never will - even if we had a central bank for every county you'd find tensions within each county as to its optimum interest rate. Maybe the disparities become greater as the currency area increases but the distribution is still likely to follow a bell curve and so setting an interest rate that balances the two competing camps (inflation v growth) will always result in a compromise of sorts. What matters then is the greatest good for the greatest number. And that includes considering the costs and benefits of a particular policy for future generations - hence why beating inflation long term seems more important than preventing a short term recession. Posted by Huw Sayer on June 17, 2008 10:05 AM Report this comment When you get down to the core problem its cheap credit. People will borrow money for property if credit is too cheap and will cause the very boom which in time results in a collapse. Central banks should be made to charge responsible rates which should be agreed and adjusted to a greater overall plan for stability. The extra money generated could be used to offset national taxes. Secondly why are we paying nearly 140 $ a barrel to oil producers? A fair payment should be agreed net to the producer and the excess given to the UN for releif of the problems caused by the excessive market price. It is not correct that unneeded huge sums of money are sent to oil producers which have noneed or use for them except to build 10 star hotels and prestige projects which benefit almost no one. Finally to state the obvious no one is really in control and agreement is no where near so I expect a crisis following which a solution will appear, but we will all have to endure years of discomfort and relative hardship before the plaster is applied. Posted by shottie0 on June 17, 2008 9:53 AM Report this comment Best Comment EVER "Robert Novak suggested that Mr Bernanke is concerned that runaway oil costs will cause a slump in growth, viewing inflation as the lesser threat." I'm not worried about inflation, I'm worried about low growth, caused by inflation... Not that I disagree, its just a weasly way of saying something. Posted by Dominic on June 17, 2008 9:30 AM Report this comment "This will most likely occur through property slumps and banking purges in the vulnerable countries of the Club Med region and the euro-satellite states of Eastern Europe." That's going to happen anyway, right? The Fed lowered rates to 2%, doesn't seem to have slowed down the housing slump in America. There will be a housing slump in Spain and in France and in other countries, because prices went up to much, in part because of Brits overpaying. I don't see why the ECB should be bailing them out, when they caused so much misery for local populations. Posted by a on June 17, 2008 8:18 AM Report this comment I am no fan of the euro and the decision to allow the mediterranean countries to participate seems to me to have been a fundemantal mistake. But AEP overstates the negative case and misses a number of vital points. 1) The first obligation of a bank is obviously to protect the interests of its owners. The European central banks are to a large extent owned by the state and so will act in the interest of their governments.The FED by contrast is a corporation owned by private banks. Analysis from a Wall Street financial institution praising the FED and criticizing the ECB is not really of much value. 2 The high euro relative to the USD has negative effects, it is true. But the Eurozone has to consider two aspects here The Eurozone has little in the way of natural resources and has to import them, particularly energy. If the US cannot prevent the USD from falling in value, then the ECB has to weigh up the cost of losing exports to the US against the gain of buying commodities in a hard currency. Since it would appear that the US consumer is going to cut back anyway and the USD is possibly going to lose its monopoly on commodity pricing, it is sensible for the ECB to aim for a high euro exchange rate and write off the US export market. I doubt however that the Euro will prove to be as hard a currency as Ambrose fears or the ECB hopes. 3 The politicians he quotes have no credibility in financial matters. Those who have driven their economies into the ground will not be the ones who are entrusted with decisions affecting the EURO. On the contrary, Germany has started to put pressure on them to conform. Witness the following article, title: Cucumber states (a pun on banana republics?, Spain produces the EUs salad) Why we should prepare mentally for a division of the Euro zone. link Ambrose likes to point out that Club Med and the German bloc together do not form an optimal currency zone. He should therefore not take the experience of the Meds and apply it to the German bloc. There is no negative criticism of the ECB policy in the German bloc. As the Meds have no influence over ECB monetary policy they will have to put up with it or leave. 4) I do not believe that raising rates will conquer the inflation problem, nor do I read many economists in Germania that expect it to. I would sugggest there is another aspect to monetary policy which should be taken into consideration. The ECB has a target for M3 growth of 5-6% p.a. At present M3 is growing by 10-12%. A frequently expressed criticism is that the ECB has lost control off the money supply. The recent comments by leading German politicians attacking the Anglo Saxon banking model lead me to suspect that the state would like to gain greater influence over the money supply and its many derivatives. One thing I would not do is underestimate the desire of the French and the Germans to have a global currency underpinning their vision of a multipolar world Posted by Huw on June 17, 2008 8:07 AM Report this comment Bernanke is clearly not 'a man in a grey suit'. You only have to look at him to see that he is a genuine man who deeply cares about the consequences of this economic crisis for ordinary people, and values his reputation for understanding how to avoid economic depressions. He has been 'got at'. He was turned sometime around the third week in April, with all those 'insiders' who knew he had been turned immediately piling into selling interest rate futures. The effect was that the Fed is effectively back on the 2% headline CPI inflation target it has been unofficially on for years, despite its official dual mandate to balance the demands of employment and inflation. It was almost certainly a defining moment in history, and made a world deflationary crash almost certain unless oil and other commodity prices fall back a very long way, and very soon. Posted by David Goldsby on June 17, 2008 7:59 AM Report this comment on the one hand you express a high regard for Jean-Claude Trichet, on the other you appear to take every opportunity to criticise his stand against inflation, which in opinion is a more pernicious and potentially longer lasting 'disease' than a down turn or possible recession. There is no doubt that after 10 years of fair winds the euro is turning into a force 10 gale, but it wll survive; the politicians will see to that. I think the ECB is right to perceive inflation as the main enemy likewise the MPC. Too many so called 'experts' have not lived through a period of high inflation to experience its destructive effects first hand. And by the way I saw the phrase 'economists know' used recently in an article in another paper but the reality is that it is a far from exact science; now that we do know. Posted by colin on June 17, 2008 7:52 AM Report this comment Gold and silver are the sure-fire winners in this scenario, and yesterday broke to the upside, see: link Posted by Peter on June 17, 2008 6:02 AM Report this comment Good for the Germans. They took the necessary pain and almost froze wages and also downsized companies to become competitive. The pain was enormous and I lived in Germany during some of this time. They were really unhappy bunnies but they knew it had to be done. The USA and UK especially took the other option and decided to live in la-la land, well la-la land has to be paid for and guess what, a registered letter has arived demanding payment. The Fed is trying to bluff the markets about raising rates and protecting the Dollar, but the ECB knows this and will put Europe before the USA. The USA might complain but they would have no qualms if the roles were reversed. What the Fed should do is raise rates to control that distorted inflation figure, but there is an election and rates will fall again. Instead the Fed will jawbone and the markets will call their bluff. Expect a Dollar plunge in Q3/Q4. The markets are also calling the bluff of the Saudis and they will find that Saudi Arabia has reached peak. OPEC is all smoke and mirrors just as the Fed is. The ECB is the real deal. Expect pain for all concerned. Posted by D Rumsfeld on June 17, 2008 5:30 AM Report this comment Ah Ambrose... you keep coming up with these great EU doom and gloom scenarios. You should really get in touch with some Hollywood producers, they'd love the stuff. On a more serious note, here we have an atlantist writer interviewing a Wall Street bank saying the poor ECB shouldn't stand up to the Fed for its own good... enough said Posted by Christian on June 17, 2008 5:23 AM Report this comment The contrasting approaches in Washington and Frankfurt make some sense. America's flexible structure allows it to adjust quickly to shocks. Europe's more rigid system leaves it with "sticky" prices that take longer to fall back as growth slows. This comment is utter nonsense to say the least. US (UK as well by the way) are just no more in a position to pay the bills for their imports. Why the hell Trichet would reduce rates when that means "even more exports to the US", even more deficit with just paper money as payment. The ECB is preparing the EC to the final outcome, a straight accross the board monetary crisis. Germany and a significant portion of Europe have had their dose of bankrupt US security paper... Alas this was only a "canary in the mine". The next stop is a full crisis of the currency. The US will default accross the board. Exports а la Chinese with paper-money payment only, non merci. Posted by franзois on June 17, 2008 5:07 AM Report this comment Surely the catastrophic event is the oil/dollar link broken, the world dumping the dollars in favour of Euros, and forcing US to raise interest rates more promptly and to higher levels. That would mean US has to work hard to get out from the credit crisis, rather than depend on the world to provide it with cheap commodities and imports. ECB is right in this instance, higher rates now mean longer term lower rates. Posted by emma on June 17, 2008 5:02 AM Report this comment This ain't rocket science folks... one size does not fit everyone. Posted by G. on June 17, 2008 2:41 AM Report this comment The pending depression is a "manufactured crisis" that is out of control with infighting amongst the elitists. If Wall Street Analysis's reports and American Newspaper articles are based upon erroneous numbers what exactly does that mean? Opinions based upon propaganda and/or lies equals... "Garbage in garbage out." Right? If numbers released by the Federal Reserve and/or US Government were lies... sheer distortions of the truth. Wouldn't that make the European Central Bank… momentarily … the "smartest kid on the block?" The truth is, America's flexible structure allowed the Bush Administration to "cook the books" concerning GDP, employment, inflation and other numbers released monthly by the US Bureau of Labor Statistics. This same group of trusted Neocon-Republicans allowed US Corporations to privatize profits and socialize losses thereby helping transfer America from Democracy to Corporatism. I've often wondered if the Euro was a mistake. The loss of control over local currency and interest rates... over such a "large" area... just didn't make sense. It was a great deal for the elitist controlled international banks, investment banking and hedge funds but not local business's and citizens of each country. In time, the Euro should prove to be a total failure and the US Dollar will remain the Worlds currency of choice. Posted by G. on June 17, 2008 2:33 AM Report this comment Attributing market movements to the avowed far right economic conservative Novak - who probably has no closer ties to the Fed than I (although I have met and sipped an ale with Richmond Fed's Lacker), is not the approach I would take Ambrose, but the dissension is real for this side of the pond at least in my circle of acquaintances. Good times are behind us, and cheap money is a distant memory. The belt tightening that has begun will be continue and expand in the months ahead. It is long overdue. Posted by fxquant on June 17, 2008 1:30 AM Report this comment Oh yes, we are all doomed! When you Euros reach 5.5% unemployment and the suburbs stop burning on a regular basis, feel free to pop off. Posted by Karl Dahlquist on June 17, 2008 1:28 AM Report this comment The USA now has to understand that it has to earn its way in the world as does more particularly the UK. The FOMC has to tighten and reduce the US deficit. The economic slowdown will come as years of excessive monetary inflation now have to be paid off. The problem is the US Election Year and whether the US, UK, EU and indeed LDCs' financial systems have the necessary capital to withstand the Financial Asset meltdown. Posted by Damian on June 16, 2008 11:41 PM Report this comment The only catastrophic event will be if the Fed continues to debase the dollar to parity with the Zimbabwean dollar. As for Morgan Stanley, well they would say that wouldn't they. Posted by anthony on June 16, 2008 11:33 PM Report this comment Just imagine if Germany still had the D-Mark....there would be devaluations across all other European currencies....and Britain rejected the euro as a German confidence trick.....another great British charge of the "light" brigade....straight into a brick wall. Posted by richard bond on June 16, 2008 10:44 PM Report this comment As always Ambrose you're on the money again. Your blogs have been excellent in comparison to some of the sponsored offel by Capital Economics and Global Insight. Morgan's scaremongering will not scare the ECB. They know whats coming either way. The Great Great Crash is drawing closer, the brakes have gone and the USA economy is just sliding painfully towards the edge of the abyss. Posted by Richard on June 16, 2008 10:43 PM Report this comment Your contributors seem to have the answer. Why not send this stuff to the Chancellor and the Gov at B of E. Posted by John Bull on June 16, 2008 9:53 PM Report this comment My guess is that this monetary "crisis" was timed to coincide with the ratification of the Lisbon Treaty so that the political merging of the eurozone countries could have advanced quickly to a fiscal merging. This would then have resolved the centrifugal tendencies in the eurozone and so validated the wisdom of the Treaty. However the Irish electorate has put a spoke in the wheel. The sticky bit is the timing, which has now desynchronised. It is rather like blowing a tyre on a sharp bend, at speed. Now the whole EU project is in danger of crashing about our ears and taking the global banking system with it; just a thought. Posted by David Robertson on June 16, 2008 9:52 PM Report this comment It is becoming clear that Central Banks are moving to protect their own constituents and, at the same time, refusing to sing off the same hymn sheet. The Fed is no longer the top CB on the block, but since American policitians (including Hank the *ank from the US Treasury) have lost nearly all credibility, the US is obliged to drop Ben from his helicopter to try and bring an air of gravitas to this crisis. Its time to stop talking and do two things in the next six weeks. One, increase interest rates to ward off a serious bout of inflation, now in its infancy. Two, bring in legislation and practical controls to manage the credit derivatives swops crisis which is about to unfold and to regulate over the counter derivatives which have the capacity to completely immolate the present financial system. If that doesn't happen, it is highly likely that the contemporary world financial system as we know it will implode. The sad thing is that the current crop of leading politicians know what is happening, and the likely consequences, but don't have the courage to speak out and try to resolve the current problems. They are going to be hounded out of office anyway; perhaps for once they could try and do some good. Posted by Ian on June 16, 2008 9:19 PM Report this comment The European way is the German way and Germany is right about money and qrowth. Germany has learnt a lot from its own lessons. The US has yet to learn that you cannot rely on other peoples savings to fund consumption. Germany ie Europe is correct. Posted by John on June 16, 2008 9:07 PM Report this comment So Morgan Stanley want more easy money to solve the problems of too much easy money in the first place !!The fed and greenspan and the slack policies of the past are to blame for the inflation problems of today. ECB and BOE must take a harder line as the feds 'strong dollar policy' is purely hot air. Aren't MS one of those banks that made really bad calls on subprime?? Think i'll stick with the ECB as the fed will print more money as US monetary policy has become a one trick pony. Perhaps the global economy would be a little sounder if the US addressed its vast national debt ?? Posted by kiwibob on June 16, 2008 8:47 PM Report this comment "Germany now has a huge surplus of 7.7pc of GDP" Why the hell can't we do this? We have a similar industrial history and culture. Why have we been so badly governed since WW2? Posted by Np on June 16, 2008 8:29 PM Report this comment I don't see a good outcome here. If there are Euro-area countries with deficits - fiscal or current account - in the 10-15pc range, then they are losing credit-worthiness, for which the classic cures are either a currency devaluation or an interest rate rise. With national currencies one of these two solutions - or a combination - would be applied by a National Central Bank. However, in the Euro-area, both interest rates and exchange rate are controlled by the ECB, which effectively means by Germany. As an investor, knowing this, my reaction would be to sell deficit country bonds lest they lose value. If enough investors took the same action, then one of two things would result. Either the spread on Euro-area sovereign bonds would widen even farther than it has to date, or the deficit countries would have to abandon issuing their own sovereign bonds, and had over control of their fiscal funding operations to the ECB. Neither of these outcomes seem likely to be popular with the taxpayers in the deficit countries. Posted by jon livesey on June 16, 2008 8:10 PM Report this comment Post a comment Please remember that the submission of any material to telegraph.co.uk is governed by our Terms and Conditions (clause 5 in particular) and by submitting material you confirm your agreement to these Terms and Conditions. Your name: * Your email address: * (We won't publish this.) Your site's URL: (If you have one.)

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