Note that I haven´t mentioned Hitler or Nazis, so as not to lose the argument at the outset. But what else does this mean? The general´s Italian, but guess who the CCO is?
BILD: President Draghi, when it was clear that you were to become head of the European Central Bank, BILD made a photomontage of you wearing a Prussian spiked helmet and called you a “true German”. What did you think of that?
Mario Draghi: I really liked it. The Prussian element is a good symbol of the ECB’s key task: tomaintain price stability and to protect European savers.
BILD: Is there a rift between north and south in the Governing Council?
Draghi: No, there is no divide between north and south. All members of the Governing Council have taken to heart Germany’s stability culture. The time of conflicts is over. But let me also say that the situation in the autumn was really critical. It could have led to a dangerous credit crunch at the banks and thus to bankruptcies; companies would have suddenly been left sitting high and dry financially. We had to prevent that.
BILD: And the banks are doing nicely out of it, right?
Draghi: The ECB’s money has got to the right places. In Germany alone, 460 banks participated in the action, many more than usual. So it wasn’t just the acutely suffering banks, but also many others, many of them small. That particularly helps the small and medium-sized companies that account for 70% of all jobs in Europe.
BILD: This all sounds very optimistic. Is the euro then a safe currency?
Draghi: Yes, it is.
BILD: Is the crisis over?
Draghi: The worst is over, but there are also still risks. The situation is stabilising. The key data for the euro area, such as inflation, the balances of payments and in particular budget deficits, are better than in the United States, for example. Investors are regaining their trust and the ECB has not had to provide support by buying government bonds for several weeks now. It is now up to the governments. They must make the euro area crisis-proof in a sustainable manner
BILD: If it were your birthday today, what would you want from the German government and the Chancellor (guessed who the CCO is?)?
Draghi: Trust the ECB. Trust Europe.
But back in the US, the wrong gods are also being worshiped. From Bernanke´s press conference:
Why don’t we do more? I would reiterate, we’re doing a great deal of policies extraordinarily accommodative.
You know all the things we’ve done to try to provide support to the economy. I guess the, uh, the question is, um, does it make sense to actively seek a higher inflation rate in order to, uh, achieve a slightly increased pace of reduction in the unemployment rate?
The view of the committee is that that would be very, uh, uh, reckless. We have, uh, we, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable, in that we’ve been able to take strong accommodative actions in the last four or five years to support the economy without leading to a, [indiscernible] expectations or destabilization of inflation. To risk that asset, for, what I think would be quite tentative and, uh, perhaps doubtful gains, on the real side would be an unwise thing to do.
Update: Meant to put this very appropriate quote (from Fischer Black):
“Usually problems are hard not because our technique is deficient but because our understanding is deficient”.