Unfair! Unfair!
Unfairly Easier
What the Hell Does This Even Mean?
Also, the statement is in quotes, but Trump is the source.
Currency War Fears
MarketWatch reports ‘Currency war’ fears rise as Trump slams Draghi’s hint at more ECB stimulus
Tweetstorm Trigger
The Wall Street Journal reports ECB Signals Possible Rate Cut Prompting Trump Tweets.
Mr. Draghi said Tuesday that ECB policy makers would consider in the coming weeks how to adapt their policy tools “commensurate to the severity of the risk” to the economic outlook. Options include extending the time frame before the next interest-rate increase, a reduction in the already negative policy rate or restarting bond purchases.
Asked in an interview with ABC News’s George Stephanopoulos about whether criticism of Fed Chairman Jerome Powell could undercut Mr. Powell’s credibility, Mr. Trump said, “Yes, I do. But I’m gonna do it anyway.”
Investors responded favorably to Mr. Draghi’s remarks, sending the euro down by more than half a cent against the dollar, to $1.1187. Yields on 10-year German government bonds fell to a fresh all-time low of minus 0.315% as investors digested the prospect of fresh bond purchases by the ECB. French 10-year yields dropped sharply and hit 0%, their lowest ever.
“The rate-cutting genie is out of the bottle,” said Bart Hordijk, FX market analyst at Monex Europe. “This opens the trapdoor to lower levels” of the euro against the dollar.
ECB Target Interest Rate Already at -0.4%
Interest rates at -0.4% did not help Europe and -1.0% or any other absurd number won’t either.
Nonetheless, the ECB is prepared to act.
Draghi Responds
Draghi responded that the ECB Does Not Target its Exchange Rate.
“We have our remit, we have our mandate,” Draghi told an audience at the ECB’s annual forum in Sintra, Portugal, on Tuesday. Our mandate is price stability defined as a rate of inflation which is close to but below 2% over the medium term.”
He iterated that the euro zone’s central bank is “ready to use all the instruments that are necessary to fulfill this mandate.” “And we don’t target the exchange rate,” he said to applause from the crowd.
So what?
The move has the same effect.
Warren in Bed with Trump
Yesterday, I noted Elizabeth Warren in Bed With Trump: Both Want to Sink the Dollar.
I had no idea a currency war Tweetstorm was coming today.
But here we are.
The fact remains, there is no economic benefit to this nonsense. It is always a benefit for the consumer to get more for their money than less.
Sadly, Warren, Trump, the ECB, Bank of Japan, and Bank of China all want the same fool thing: Higher inflation and less for your money.
Race to the Bottom
In the race to the bottom, the ECB is ahead.
- Negative interest rates are not only absurd, they damage bank profitability
- The Italian Mini-BOT will lead to the breakup of the Eurozone.
Mike “Mish” Shedlock
I’m really shocked there’s not more demand for the euro. Where else can you pay to have someone use your money?
I don’t think China is manipulating their currency any more. They have a trade surplus with the US, but their current account surplus with the world no longer exists. They no longer need to intervene to keep their currency down. Their US treasury purchases have stopped which corroborates this.
Trump may be an idiot but an idiot is a welcome breath of fresh air when one is beset by legions of cretins.
Agreed.
Trump is an idiot.
Negative interest rates make no sense and have delayed the pain. Unfortunately, the lessons learned from all the monetary easing are that it works. MMT is now driving more printing and more easing is coming.
It will not end well but my questions is how long can it last? I didn’t think it could last 10 years but it has. Maybe 20 years?? 100?? Thoughts?
WOW. Just WOW. The DAX is up 1/200th more than is the DOW right now. The € is down 1/500th compared to the $. Truly this is history in the making. Such shocking disparities have never before occurred in the market. This is the GREATEST case of Unfair Play ever!
What could be worse than the DAX outperforming the DOW for one day?
Facebook crypto could help usurp Euro in places.
FB have more credibility than the ECB.
Can’t stand FB but could be a Trojan horse.
Once upon a time smugglers were state revenue enemy #1, soon it could be crypto issuers.
Talk of the devil, might they be worried?
If FB back down on the threat of regulation if they launch then who will pick up the mantel?
Currency is what people want it to be. If confidence shifts, values change. If enough people use a crypto it is what they decide it is. It could be parallel to a fiat, especially one backed by a bankrupt system. That includes the UK.
Google – “Facebook Token Runs Into Instant Political Opposition in Europe”
Let’s revisit this in 5 and 10 years.
In summary, pick your poison, options include;
A) Makes no difference – “extending the time frame before the next interest-rate increase”
B) Screw the banks and insurance co’s even further – “a reduction in the already negative policy rate”
C) Encourage even more zombification leading to even bigger problems when the piper stops playing – “restarting bond purchases.”
Am I too cynical, sceptical, jaded?
Wait until the US economy nosedived because of corporate bond crisis.
Going to Europe in the late Summer for vacation.
Selfish me wants the Euro to nosedive.
Brussels has not removed tariffs on US automobiles. Germany has not cancelled Nordstream II. There will be tariff hell to pay after Brexit. President’ Trump’s bluster over currency is a facade paving the way for enormous tariffs on EU automobiles. Sanctions against Nordstream financiers and construction companies are likely.
Brussels regulations and red tape have killed the EU golden goose. What was the last creative enterprise or product out of Europe? Negative interest rates cannot help Europe.
The value of Dutch exports was 84.5% of GDP in 2016. The value of German exports was 47% in 2017. Belgium (Brussels) 86%. Clearly these countries produce nothing of any value (they have almost no natural resources, oil, minerals etc), except for red tape, welfare, and such.
Oh, that and marketeable goods and services.
Your exports are subsidized by value added tax system that does not apply to exports. Exports of productive northern Europeans are subsidized by an undervalued Euro depressed by shiftless southern Europeans. This imbalance will end abruptly and soon.
Studies that have attempted to establish a relationship between VAT and exports have all been inconclusive — it’s a myth. Subsidized production is a myth altogether. No country can afford to subsidize exports for decades and get rich doing so. As for hidden subsidies, look no further than research and production sponsored by the military industrial complex, everything from nuclear energy to planes, pharma, and even biotech. Or do look further, it’s just the most obvious place to start.
Tax what you want less of. Either a VAT or a Sales Tax is intended to discourage consumption. They should never apply to exports. Why would you want to discourage exports? Meanwhile, the US chooses to rely on an Income tax, and thus discourages productivity while encouraging consumption. The US need to look no further than it’s own tax code to understand why they have a structural trade deficit.
I agree. Trump Tariffs shift the tax burden from production to consumption. President Trump is redressing the imbalance.
EU exports go untaxed because VAT does not apply to exports. A good 50% tax on EU imports to USA can fix the problem.
This is the assumption, hence the studies to show if indeed VAT taxes to lead to more exports, etc. Conclusion is no. I’m not going to reproduce the logic here, but lots of people have thought about recommending a VAT in the USA for this very reason, but consensus among economists is that this will not work in the straightforward way people think (tax imports, subsidize exports).
If you so believe then a countervaling tariff has no effect either.
Why just a 50% tax on EU imports to the USA? Why not just Huawei it (total ban)?
Inching up tariffs gives bargaining power.
European socialism cannot survive without a free ride exporting to USA. The collapse of socialism as in Venezuela is always fun to watch.