Sunday, October 26, 2008

The crushing of the euro lies at Trichet's feet

And now, he is powerless to stop it. Trichet, in his smugness, thought he would show the world that he was the only sensible and strong Central Banker with his refusal to cut rates. Now rates in Europe must come down dramatically. And Trichet will soon be a footnote on Central Bankers stubborness and incompetency.

Instead of reducing rates when they were needed, the ECB actually raised rates. Trichet ignored the screams of the market. Those that bought into his stupidity and wanted their petrol dollars in euros are now burned twice.

Look what Trichet had to say October 2 press conference, when he held rates steady, but before the ECB had too cut rates on with coordinated Cental bank easing on the 8th.

Now European banks will soon have huge losses on their books, on their loans to developing countries and emerging markets. Their exposure is 5x the US or Japan's.

And Japan and the US, the countries with the lowest interest rates have the strongest currency.

Policymakers worldwide belatedly now recognize that the greatest risk is deflation. 5 year TIPS (Treasury Inflation Protected Securities) indicate that we will have negative inflation.

Trichet said the market was over-estimating risks. The biggest risk, is that he has over-estimated his judgement!

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