Should the European Central Bank (ECB) Continue its Diversionary Policies? Yes, Yes it should!
For me it is obvious that the ECB has taken a very cautious stance since its November decision to cut rates. If it continues this dilly-dallying attitude then I have no doubt that the Euro will fall further and this will end up with a very low Euro.
Then why would the ECB continue its diversions which could plunge the Euro to very low levels if it really wants the Euro to fall and therefore become more attractive? Why should the ECB continue to so effectively stimulate growth and job creation if it really wanted to get out of the doldrums?
In fact I do not think that the ECB really needs to go on with this whole “stimulus” policy. In my view the problem is a very long term one, the Federal Reserve, and this time around the Fed is too hesitant to take aggressive steps to stimulate the economy.
The Fed needs to follow up on its “stimulus programs” like Quantitative Easing (QE) and by injecting a large amount of money into the markets and by having “open door” meetings with various financial institutions. And these meetings can be open to all financial institutions, this will give all financial institutions a chance to tell their story.
The central banks need to let them know that there are now constraints that they cannot keep hounding. So that means they need to stop their “dangerous” policies.
If they could let their “dangerous” policies drop then surely they will have a much easier time encouraging a stronger recovery as the free markets will demand that they also give in. I believe that this is exactly what the ECB is afraid of because it believes that if it fails to do so, then it would lose its credibility and hence its right to rule over the monetary policy in Europe.
So the Fed will then have to step in and the Fed and the ECB will be forced to follow the same path of “free markets” if they really want the Euro to fall. And if the Euro falls, it is going to hit the USA just as hard as it would the Eurozone as the USA imports a lot of commodities from the rest of the world, and if that Euro fall then the USA would suffer the same way as the Eurozone.
So I think the Fed and the ECB must leave the Euro alone, and once they see the severe effects of massive deflation, they will have no choice but to act in a very forceful manner to stabilize the Euro and prevent huge deflation. So if we all remain calm then this would not only put the Euro at an optimal level, but it would also help the USA.
What would you say to those who fear inflation because their inflation expectations are too high and they cannot keep them stable? Please consider this and ponder on it as I continue…
My final point is that my belief is that if the Euro falls as it did during the last Great Depression then we will have to adjust and that is when the USA needs to act. After all, we are now in a similar economic situation.
Should the ECB Continue Its Diversions? Yes, Yes It Should!