But then our initial skepticism towards Europe’s new money quickly turned to admiration. The euro’s weaknesses were actually its great strength. Since no nation stood behind it, none would knock it down to get where it wanted to go. Just as the Europeans could never agree on sausages or military campaigns, they would never agree on the destruction of their money. If French wanted a weak euro to help enliven their economy, the Germans and the English would tell them to stop whining and show some backbone. If it were the English whose economy went soft and who wanted an easier money policy, likewise, the French would like nothing better than to deny it to them.
That is the charm of the Europeans; they detest each other mutually. The French would rather endure a depression themselves than spare the English one. And as for the Italians, the Irish, the Austrians…and all the other peoples at the periphery – well, they can just look out for themselves!
But rather than leave the European Central Bank weak and subservient, it actually makes it stronger and more independent. Its officials may have no more integrity than officials of the Federal Reserve. Their economic theories may be no better. But at least they are unresponsive. In central banking, the consequence of inertia and inactivity is almost always salutary.
While the Fed has cut rates…raised them…and then cut them again, the ECB has done nothing. And the euro has almost doubled from its low and now trades for $1.55.
6 thoughts on “Quote of the Day”
What is his justification for challenging the *integrity* of the Federal Reserve officials?
Reading them for a while, in general, they think the Fed’s actions in lowering rates and increasing the money supply have been foolish because these steps lead to inflation. They think the Fed is acting to prop up the market, which is self defeating because while the nominal value of stocks and debt remains the same, inflation greatly erodes the real value. They think the Fed is acting in reaction to political ramifications as opposed to their charged duty. Hence, in general, they challenge the Fed’s integrity in bending to political pressures instead of controlling inflation.
Would it be churlish of me to point out that the UK is not part of the Euro.
LOL, no. At the same time, the BOE probably would like the ECB to do more to help the crisis. Here’s another interesting article that makes you appreciate, no matter how bad some U.S. mortgages may be, at least they’re not denominated in Euros!
“Hundreds of thousands of British homebuyers who sought to cut costs by using foreign currency mortgages with lower interest rates have seen their plans backfire as the euro has soared by nearly 20 per cent against sterling during the last year.”
The third paragraph makes a reasonable point. However, the flip side of the argument is that policy mistakes are inevitable, and the Euro monetary system’s inertia makes it relatively difficult to rein in the ECB’s major errors.
Milton Friedman famously suggested that we replace the federal reserve with a horse trained to tap out increases in monetary supply when told the increase in the GNP. If the GNP went up 3%, the horse would tap out three. Not a perfect system, but it would be better than people following untested and untestable hypothesis under various forms of social and political pressure.
The Euro might have stumble into a system almost a good as the sideshow horse. Darwinism is a wonderful thing.
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