Monday, July 11, 2011

Wonderful commentary... AEP making the rounds. Full Article Here.

It will also take a total purge of the ECB's leadership, which clings
to its madcap doctrine that monetary policy can be separated from
other emergency operations, and which chose last week of all moments
to raise interest rates again and kick Spain in the teeth. It did so
knowing that the one-year Euribor rate used to price more than 90pc of
Spanish mortgages must rise in lock-step. As one Spanish commentator
put it, the Eurotower in Frankfurt should be torn down, and salt sown
in the ground.

If the governor of the Banco de Espana really endorsed this rate rise
(supposedly "unanimous") he should be hauled before the elected Cortes
and ordered to explain such locura: if the EU authorities object, they
should be told in crisp terms that Spain is a great and ancient
sovereign nation facing a national emergency and will do as it sees

Where is the inflation threat? The eurozone's M1 money supply has
contracted on a month-to-month basis over the past two months, with
sharper declines in the periphery. Annualized M1 growth is falling,
not rising: it was 2.9pc in March, 1.6pc in April, and 1.2pc in May.
Broader M3 grew at a rate of 2.2pc over the past three months.

The PMI data for Italy and Spain have dropped below the recession
line. The Goldman Sachs global PMI indicator shows that 80pc of the
world is tipping into a slowdown, including India and China. Taiwan's
bell-weather exports to China sank 12pc in June from the month before.

The calamitous US jobs data released last Friday leave no doubt that
the US remains trapped in depression. Broad U6 unemployment rose from
15.8 to 16.2pc in June; the numbers in work fell by a quarter million
to 153.4m; the average time without a job reached a fresh record of
39.8 weeks; hourly pay fell; hours worked fell; the
employment/population ratio crashed to new lows of 58.2pc.

This is not a time for the ECB to raise rates. It has repeated the
error made in mid-2008 when it tightened into the final phase of an
oil shock, when half the eurozone was already in recession. Once is
careless, twice is unforgivable.

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