WASHINGTON, November 8, 2013 — Wasn’t that just the loveliest meeting of the European Central Bank in Frankfurt yesterday? It ended with a decision to cut interest rates. The only surprise is that it’s being called a surprise. What exactly was surprising about it? After whining for months about deflation, the Eurozone is surprised by a rate cut now by the ECB?
Employing typical simplistic American logic, given low domestic demand in the Eurozone,
1) Cutting the interest rate is effected by:
2) Expanding the supply of euros, which has the effect of:
3) Cheapening the value of the euro, which has the effect of:
4) Reducing the risk of importing deflation, which has the effect of:
5) Raising the purchasing power of the dollar, which has the effect of:
6) Increasing the ability of the United States to buy European products.
Students of mine, if you’re reading this, yes, it will be on the next exam. I mean it.
That’s what it comes down to. Just a few weeks ago, when every last economic hoity-toity in the world came to OUR nation’s capital to lecture OUR President, OUR House Speaker, OUR Fed Chairman and by extension all the rest of us on the importance of avoiding a government shutdown, they actually had their own economic self-interest in mind.
I’m all for self-interest, but do we go over to European capitals and lecture them? Okay, maybe John Kerry does, but other than him, and other than Treasury Secretary Lew, whom I eviscerate with a scathing article in the latest Washington Times print edition, no.
This brings me to IMF honcho Christine Lagarde, who’s left to defend the Eurozone alone in Washington, like in the cartoons where one character is “volunteered” when all the others take a step backwards. Her position about the euro continues to surprise me. She strongly supports it and says she will “do whatever it takes to ensure effective cooperation.” It sounds very dangerous to me when someone demands my cooperation. Kinda like someone demanding that I exercise my free will to do their bidding.
This doesn’t sound very Milton Friedman. Unsure of her political proclivity and too lazy to look it up, I’m left to wonder where in the spectrum of political beliefs that exist at Non-Governmental Organizations she might reside. Is she liberal, as we use the term in America, or is she a sickle wielding commie?
On the positive side, she seems disliked by liberal Nobel Laureate Paul Krugman. On the negative side, she has been endorsed by liberal Nobel Laureate Joseph Stiglitz. Six of one …
If I ever had the chance to interview her, I would like to know which of those two is more exasperating. Actually, I would be even more interested to know how someone who’s invariably described as charming would field such an annoying question. With the muscles of the champion swimmer she once was, if she were to punch me, it would probably sting like a mother.
But anyway, now we have the ECB cutting rates to record low levels. Sound familiar? The next time they boondoggle to Washington, they really shouldn’t hector us about our monetary policy. Otherwise, some might be tempted to remind them of old aphorisms like pot kettle black, glass houses stones, speck eye log, etc. Probably not me, though, because only a typical simplistic American would do that.
Michael Justin Lee from the faculty of finance and the Center for East Asian Studies at the University of Maryland, teaches, speaks and writes at the intersection of finance and politics. He is the author of “The Chinese Way to Wealth and Prosperity” (McGraw-Hill, 2012). A veteran Chartered Financial Analyst, he served as Financial Markets Expert-in-Residence in the U.S. Department of Labor. He can be followed at www.michaeljustinlee.com
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