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GRG55
10-11-07, 03:15 PM
If there was still a Deutsche Mark, with these guys running the show it would probably be the closest thing to a hard currency left on the planet (Au excepted of course).

ECB's Weber Says Interest Rates May Need to Become Restrictive

By Gabi Thesing
Oct. 11 (Bloomberg) -- European Central Bank governing council member Axel Weber said the bank may need to raise interest rates to a level that restricts economic growth to keep inflation under control.

``If risks to price stability are threatening to materialize, monetary policy can't lose sight of its primary mandate -- even if that means no longer supporting the robust economy or becoming restrictive,'' Weber, who also heads Germany's Bundesbank, said in the text of a speech in Munich today. There may be an ``additional need'' to raise interest rates, given the ``expected acceleration in euro-region inflation over the coming months.''...

While Weber acknowledged ``increased uncertainty,'' he said the ECB needs to remain focused on fighting inflation. ``Price increases are taking place on a broad front and are no longer limited to energy and volatile food prices,'' he said.

Link to article:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aWKV52Fxn7Gc&refer=economy

metalman
10-11-07, 03:23 PM
If there was still a Deutche Mark, with these guys running the show it would probably be the closest thing to a hard currency left on the planet (Au excepted of course).

ECB's Weber Says Interest Rates May Need to Become Restrictive

By Gabi Thesing
Oct. 11 (Bloomberg) -- European Central Bank governing council member Axel Weber said the bank may need to raise interest rates to a level that restricts economic growth to keep inflation under control.

``If risks to price stability are threatening to materialize, monetary policy can't lose sight of its primary mandate -- even if that means no longer supporting the robust economy or becoming restrictive,'' Weber, who also heads Germany's Bundesbank, said in the text of a speech in Munich today. There may be an ``additional need'' to raise interest rates, given the ``expected acceleration in euro-region inflation over the coming months.''...

While Weber acknowledged ``increased uncertainty,'' he said the ECB needs to remain focused on fighting inflation. ``Price increases are taking place on a broad front and are no longer limited to energy and volatile food prices,'' he said.

Link to article:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aWKV52Fxn7Gc&refer=economy

wow. well, someone had to open a window and let in some fresh air. all the central banker "no inflation here" flatulence was getting out of hand.

jk
10-11-07, 03:36 PM
we'll see if he changes his tune when the euro gets to us$1.50.

GRG55
10-11-07, 04:06 PM
we'll see if he changes his tune when the euro gets to us$1.50.

Weber is from the Deutsche Bundesbank, as was recently retired ECB Chief Economist Otmar Issing.

Issing, you'll recall, was a scathing critic of the Greenspan Fed's "Bubbles are invisible" mantra - and warned of the ultimate consequences of the Fed's easy money policies earlier this decade.

The Bundesbank just seems to produce a different sort of Central Banker - but a $1.50+ would certainly be an acid test.

If they stick with this line and, especially if the ECB refuses to go along with the easing tendencies of the Fed, BoJ and BoE, the credit unwinding process will probably experience "elevated" centrifugal forces...

(I flagged the original post because this item struck me as an extraordinarily clear signal from the ECB that they are not going to try to support the US$ at the expense of excessive Euro zone inflation. I really think they are sending a message here.)

jk
10-11-07, 06:36 PM
(I flagged the original post because this item struck me as an extraordinarily clear signal from the ECB that they are not going to try to support the US$ at the expense of excessive Euro zone inflation. I really think they are sending a message here.)

if they ease it won't be to support the us$, it will be to save european export industries. for example, think of all the troubles airbus already has.

GRG55
10-12-07, 06:59 AM
if they ease it won't be to support the us$, it will be to save european export industries. for example, think of all the troubles airbus already has.

jk: I think we may both be saying something similar?

It might be just semantics in the less than clear way I have phrased my previous comments. In my view, from an ECB frame of reference, deliberately "weakening the Euro" is the means by which they "support the US$". In my simple-minded way of looking at things, it's the same thing...but I freely admit I could quite easily be missing something here jk.

Certainly all Central Bank statements, and Axel Weber's are no exception, always contain a heavy dose of jawboning; and you are right - they're all inflationary confetti printers at the end of the day. The most hawkish statements from CBs always seem to come out just before they start a faster than normal debasing of the currency.

This time, however, my instinct is the ECB is trying to send a message to a broader audience that includes the Fed, the new French President and Euro zone manufacturers (including Airbus) - Basically: Yes, we'll do our part to support the Dollar (help our exporters), but don't count on us to indiscriminantly trash our own currency and create an excessive Eurozone inflation problem for ourselves just because...

(to the Fed) ...you are prepared to accept future high inflation as the price for an out-of-control fiscal policy aided by your support for serial asset bubbles;
(to the French President) ...after campaigning on a platform of reforming the French economy, you have decided to back away from any change that may prove the least bit unpopular, and now want the ECB to more rapidly inflate away your chronic fiscal deficits and the effects of a 35-hour work week;
(to European industry management) ...you continue to use national policy and "culture", and fond memories of the previously weak Euro, as a crutch to defer and delay the continuing productivity improvements needed to compete globally.Maybe you're right, and the ECB will capitulate. But I am somewhat less convinced they will roll over vis-a-vis the US$. For example, Airbus makes an interesting case study.

When the Euro was sub-$1.00, Boeing Commercial Aircraft responded, in part, by initiating an outsourcing of its component supply (unfortunately the B787, the "most outsourced Boeing plane ever", shows how difficult an overly-aggressive execution of this strategy can be. I had a personal experience, as a manager in a large oil company, dealing with the aftermath of a similar mistake, imposed by head-office on the advice of a prominent management consultancy). Airbus used the then-weak Euro to avoid necessary, but politically difficult decisions, and any substantive changes to its vertically-integrated, regionally-concentrated business model. In my mind Airbus' previous outperformance of Boeing, and Boeings recent regaining of market share have more to do with relative currency exchange than any other factor (model-for-model the planes are not that much different, and there was never any danger that one would put the other out of business, as buyers would never support a monopoly in such a high barriers to entry business).

The high Euro is now forcing Airbus to make changes on a compressed time-table - not usually a desirable way to bring about change in a complex organization.

Final assembly of Airbus aircraft is no more likely to leave Europe than Boeing assembly is to leave Everett or Renton. But Airbus is finally on its to becoming a globalized company. Just one small example: Two of my business associates (one Arab, one German) are currently in advanced negotiations to re-locate aerospace parts manufacturing, of one of Airbus' suppliers, to the low-energy-cost, lower-raw-materials-cost, low-labour-cost, low-tax, US$-proxy-currency-zone Arabian Gulf (another reason the local Monetary Agencies would prefer gradual changes, if any, to their US$ pegs).

My gut is telling me that Weber is telegraphing that the ECB won't (can't?) do anything to materially stop or slow down that process for Airbus or any other Eurozone exporter.

GRG55
10-12-07, 08:35 AM
wow. well, someone had to open a window and let in some fresh air. all the central banker "no inflation here" flatulence was getting out of hand.


metalman: Hope you're getting ghost writer royalties from EJ... :)

http://www.itulip.com/forums/showthread.php?t=2193