Trichet Remains Indignant
If nothing else, I have to give Jean-Claude Trichet, the head of the European Central Bank, credit for remaining resolute. Before the scope of this crisis was evident most everyone in the world thought Bernanke was incompetent for lowering rates in such an inflationary environment. Bernanke may be incompetent but if that is a true statement, it isn't because he was on the wrong side of the trade as Trichet was and is.
When Wall Street was cheering Trichet for being resolute we were writing that he was very likely running the European economies off of a cliff. And, we were right. The Euro nations are being downgraded left and right by Moody's and S&P strictly because of European Central Banking policy. But let's be honest. Past economic sins must be accounted for in some method. Therefore, no easy solutions exist. The reality is the world has become so reliant on credit that Trichet's approach will have devastating impacts. Forcing the world to change on a dime will increase systemic risks. The entire world is awash in its economic sin. And, that goes substantially well beyond credit.
Trichet may be correct in his literalism that countries must reach a level of sustainability in their policies but reality is much more complex. If his indignance drives unemployment to 25% in Spain, what will be the social and economic costs? Are they worth the hard line policy in the short term? In other words, one cannot become completely reliant on leverage and credit then remove any flexibility in credit and not expect a hard landing. There are parameters around which Trichet could be conduct more flexible policy while still achieving goals of long term sustainability. How many decades will it take to put one fourth of the workforce back into productive employment?
Trichet - No European Central Banking assistance for European nations. Additionally, further Trichet's remarks are available on Bloomberg video.
When Wall Street was cheering Trichet for being resolute we were writing that he was very likely running the European economies off of a cliff. And, we were right. The Euro nations are being downgraded left and right by Moody's and S&P strictly because of European Central Banking policy. But let's be honest. Past economic sins must be accounted for in some method. Therefore, no easy solutions exist. The reality is the world has become so reliant on credit that Trichet's approach will have devastating impacts. Forcing the world to change on a dime will increase systemic risks. The entire world is awash in its economic sin. And, that goes substantially well beyond credit.
Trichet may be correct in his literalism that countries must reach a level of sustainability in their policies but reality is much more complex. If his indignance drives unemployment to 25% in Spain, what will be the social and economic costs? Are they worth the hard line policy in the short term? In other words, one cannot become completely reliant on leverage and credit then remove any flexibility in credit and not expect a hard landing. There are parameters around which Trichet could be conduct more flexible policy while still achieving goals of long term sustainability. How many decades will it take to put one fourth of the workforce back into productive employment?
Trichet - No European Central Banking assistance for European nations. Additionally, further Trichet's remarks are available on Bloomberg video.
<< Home