September 06, 2011
Somehow the European Central Bank (ECB) is managing to avoid the intense anger that it richly deserves. While some of us have lambasted the Fed for failing to recognize the largest housing bubble in the history of the world (or perhaps worse, not realizing that its collapse would devastate the economy), the ECB scores just as highly in the economic incompetence category. Furthermore, it is compounding the destruction caused by its incompetence with its continued commitment to its 2 percent inflation target.
In this respect it has performed far worse than the Fed in the post-collapse world. While the Fed pushed its overnight interest rate to zero and has committed to keep this rate for the next two years, the ECB never went below 1.0 percent. Incredibly, it actually began raising rates earlier this year. Its overnight rate is now 1.5 percent.
Even more serious is its efforts to impose austerity throughout the euro zone. Somehow the ECB president never learned basic economics. If they force austerity throughout the euro zone the outcome is even slower growth.
Furthermore, by failing to commit itself to supporting the debt of troubled countries it is terrifying world financial markets with the risk of another Lehman-style meltdown. The stock market plunge last month that was widely attributed to the S&P downgrade of U.S. debt was almost certainly due to fears of a meltdown stemming from the euro crisis. Certainly this is the most obvious explanation of the current turmoil.
The question is why isn’t the public more outraged at these unelected central bankers threatening the world with another financial crisis. Haven’t they already done enough damage?
