Economic News, Smart Spending

Europe Recovery? Maybe Not — ECB Cuts Rates

Wait, I thought they had “turned the corner” or were “up from the bottom” or maybe “leading the way” or something or another. Apparently not, and with an exclamation point. By now you have probably heard that the ECB have cut their rates to even closer to zero than they already were. What the heck is going on here? The official explanation is of course, as rosy as possible. The ECB gurus have stated that inflation is so low that they can cut rates with ease to “help” the economy grow even more. The implications of this line of thinking (I’m using that word loosely — obviously) is that due to their already awesome policies inflation has been tamed and with this new cut growth should rocket to the moon. Now don’t get me wrong, nobody believes that, but a version of the story must be pumped out for us mere rubes. Sometimes they will add some varying add-ons to the play acting and a perennial favorite is the dreaded deflation concern:

Draghi will use his news conference to try to dispel concerns that October’s inflation drop raises the spectre of deflation in the euro zone.

Oh, yes that’s right…I mean there is no deflation concern and certainly no inflation concern or growth concern or any concern whatsoever. Everything is peachy keen. Some meanies, inexplicably, don’t believe the ECB for some odd reason though. And the suspicions are all basically centered on a couple of convenient coincidences:

Adding to the ECB’s dilemma over how to support a fragile recovery is a fall in excess liquidity – cash beyond what lenders need to cover day-to-day operations – as banks repay 3-year ECB loans early before a health check next year.

These early repayments are expected to push interbank lending rates higher over time and the ECB has been considering pumping more liquidity into the system to offset this development.

Hmmm. Well, that is certainly something to consider. And then there is this little nugget of negativity:

“The ECB knows that a rate cut at the current juncture will do only very little to kick start the economy or to fight deflation,” he said. “In my view, it’s aimed at further weakening of the euro exchange rate.”

Hey, someone give that man a prize! Here we are 5 years into the “great recession” and the race to devalue the currencies worldwide continues unabated. Japan, India, the U.S. all seem to be in a race with the Euro to see who can trash their money the fastest. Of course that part is hardly a fresh piece of news, but it can be a bit depressing. Do you think that they really believe that this is a good idea? I mean, they can’t…can they? Can they?

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