Tuesday, May 11, 2010

Confidence game lost

ECB May Kiss Credibility Goodbye:
Commentary by Daniel Gros and Thomas Mayer
May 11 (Bloomberg) -- There is an old saying among central bankers that credibility is earned in years of hard work, but can be lost overnight. On Sunday night, the European Central Bank may have said goodbye to its credibility when it agreed to buy the government bonds of euro nations in trouble.
This casts a dark shadow over the euro area’s 750 billion- euro ($980 billion) stability package, which was dressed to impress, and seems to have worked so far. Markets will probably advance in the near term as short positions need to be covered.
A major casualty of the emergency decisions was the ECB. With its move to prop up the failing bonds of governments in financial distress, it has allowed itself to be transformed into an agent of fiscal policy. The intention to sterilize bond purchases means, in effect, that it taxes euro-area private borrowers to support governments in difficulty. In the long run, this is likely to undermine confidence in the ECB and the euro. --
Full text
Comment: Indeed, the euro is nothing but another fiat currency, a hybrid created by politicians for political aims. The euro will go the same way as the dollar will go. Both march in tandem towards hyperinflation which will crush both currencies. What will remain after the devastation? Maybe there is hope that the people wake up and demand a currency of their own, a currency that is beyond the reach of politicians. Let us assume that two, three or four major currencies emerge from the private sector. They can have a global use and reach like nowadays one can use the major credit cards all over the world. Free banking won't have a chance before state money will be totally destroyed and absolutely discredited. We're on our way for this to happen.

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