Monetary policy

Have the responses to the Global Financial Crisis just shifted us towards another bubble economy?

In the wake of the financial crisis power shifted from politicians to the ECB, now it’s time for elected governments to address the underlying causes of Europe’s malaise.

If you are a born optimist, you may have concluded by now that the euro crisis is over. Indeed, we have not heard much about it lately. No bailouts, no bank runs, no Greek elections. It almost feels like financial stability. If you are a realist, however, you would be looking at two figures and know that we are right in the middle of the euro crisis.

Is parity between the Kiwi and the Aussie dollars a reason to celebrate or a to be worried? And shouldn’t we just take the opportunity to reflect on how we got there?

Ben Bernanke’s analysis of Germany’s exports problem is correct but it yields the wrong conclusions.

The real problems for Germany will begin once the ECB follows the Fed’s example and tapers its monetary stimulus. But thanks to the eurozone periphery, it may take years until the ECB feels ready to take this step. In the meantime, Germany may enjoy its bubble economy while it lasts.

Speculating and commenting on central banks’ next moves is something for foreign exchange traders, not Prime Ministers

By demonising ‘deflation’ (even if it is really just price stability by another name), the ECB underlines its commitment to helping the eurozone’s debtors, whether they are financial institutions or governments. The response to this so-called deflation threat will be to maintain interest rates negative or even embark on a program of quantitative easing, which may be announced over the coming days. In effect, however, such policies are just bailout programs by stealth.