Will we get a rate reduction? Not if the ECB does it’s job we won’t.

I have seen articles in the news and economists from large lending institutions are saying they believe we will see two rate reductions in 2008. There are various reasons being put forward for this, and personally I would be delighted to see this happen, however, the flip-side is that if the ECB drop rates then to a degree they will just undermine their own credibility. Why? Because the ECB are not there to save the market just because there is a credit crisis, they were willing to inject liquidity in order to ensure that credit kept flowing, but in the area of Base Rates their only tenet is to control inflation at ‘near or just below 2%‘.

Rate reductions are inflationary, more money starts to move about the economy and there is an upward movement on prices, at the moment inflation is already above the stated target so cutting rates would only exacerbate that, if we get a …

Read More

The ECB won't cut rates? A central bank doing exactly what it should.

The Fed is still trying to bail out the US economy, there must be a fundamental belief there that a recession is the worst thing in the world. Personally I would feel that the 1,000,000 lives lost in Iraq outweigh the damage a recession might do but for some reason the efforts to end the war pale in comparison to what politicians and policy makers are willing to do to avoid an economic downturn.

Bear Stearns was bought for $2 a share by JP Morgan Chase, their stock price was about $38 recently, and the money to do the bailout was Fed backed. In fact the Fed is evoking laws designed during the great depression to lend direct to banks.

The USA has recession aversion, it’s almost like the economy there is one giant dog dry heaving to Pavlov’s recession bell. The issue is that the budget still has to be met, these bailouts cost money and the money …

Read More

The ECB won’t cut rates? A central bank doing exactly what it should.

The Fed is still trying to bail out the US economy, there must be a fundamental belief there that a recession is the worst thing in the world. Personally I would feel that the 1,000,000 lives lost in Iraq outweigh the damage a recession might do but for some reason the efforts to end the war pale in comparison to what politicians and policy makers are willing to do to avoid an economic downturn.

Bear Stearns was bought for $2 a share by JP Morgan Chase, their stock price was about $38 recently, and the money to do the bailout was Fed backed. In fact the Fed is evoking laws designed during the great depression to lend direct to banks.

The USA has recession aversion, it’s almost like the economy there is one giant dog dry heaving to Pavlov’s recession bell. The issue is that the budget still has to be met, these bailouts cost money and the money …

Read More