Flying Pink Unicorns

I was right and the ECB was wrong.

I was right. Again. This time it had to do with the interest rates set by the European Central Bank (ECB). Again, the ECB sets interest rates for all of the countries which use the Euro as their currency, much as the Federal Reserve sets interest rates.

In my post of June 6, 2008, I mocked the leaked news that the ECB was to raise interest rates soon.

http://flyingpinkunicorns.blogspot.com/2008/06/i-hate-european-central-bank.html

The announcement caused the dollar, then moving downward, to really tank (It has since rebounded strongly against the Euro as investors flee to the "safe" US in these godawful scary times). In addition, the move was wholly unnecessary, as I argued at the time. I argued that the ECB would harm to the dollar vs. Euro exchange rate and that inflation in the Euro zone was not a problem.

Well, shortly thereafter, as we all know, the world financial system, led by the US, went to hell in a hand basket, dragging the real economy down with it. And, to its credit, the ECB lowered rates by half a point in October, another half a point in November, and 3/4 of a point in December. It lowered rates by an additional half a point today. In short, although it has moved radically slower than the federal reserve to get interest rates down, it immediately stopped increasing rates.

Now I'm not going to sit here and tell you I predicted that the financial crisis (or the real economy) were going to get anywhere remotely near as bad as they did. I didn't. I'm not going to argue that the ECB's blunder in signalling higher interest rates and then following through with them made any real difference. Because in the end it didn't.

But I will sit here and tell you that I argued, (for months) in this blog and in private e-mails with Andrew, that inflation was not a problem here or in Europe, and worrying about it was absolutely silly. And I was right, right, right!! So yes, I was doing a better job running Europe's interest rate policy than the board charged with doing it. Which, given that Jean Claude Trichet is its head, isn't real surprising. Trichet had rocks in his head; still does. European interest rates in Euro-land aren't being lowered anywhere near fast enough. European inflation will drop darn near as fast as here. While Europe's economy isn't anywhere near as bad as ours (yet) it is almost as dependent on oil and thus will benefit hugely as we will from oil's dizzying price declines. And while Europe's economy doesn't adjust as fast as ours (one of the great strengths of the United States) it does adjust. European inflation has already dropped sharply, down to 1.6 % year on year vs. 2.1% in November and 4% in July (shortly after I wrote the above post arguing that there would not be an inflation problem in Europe)!

I was right and the ECB was wrong.