Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

ECB Rate Cut: Eyes on Aussies

Interest-Rates / Global Debt Crisis Oct 15, 2011 - 10:48 AM GMT

By: Dr_Jeff_Lewis

Interest-Rates

Investors sent German government bonds higher, banking on a rate cut from the European Central Bank. Now just days after bullish bond sentiment reached its peak, investors have backed off, realizing that a rate cut might be less likely than once thought.

Rates are already held low by the European Central Bank, which stopped short of actions on a magnitude to mirror the United States. The ECB currently offers a 1.5% rate on its main financing operations, known as fixed-rate tenders.


Some economists believed the ECB would indirectly lower rates by assuming bank losses. Nationalizing the banks remains a big issue in Europe, where major EU members have fought against a move to internalize sovereign debt balances. Any move to “nationalize” banking losses would come as a result of ECB bond buying, which would remove risky sovereign debt assets from private banks while turning over the risk assets to the balance sheet of the ECB.

Looking to Australia

If the ECB were to cut directly the rate at which it makes capital available to banks, it would likely come after a move by Australia to lower rates. Flooded with foreign cash, the 4.5% rate on short-term paper in Australia makes the commodity economy a natural resting place for inexpensive foreign capital. Finance ministers have discussed the possibility of lowering the Australian benchmark index in order to boost economic growth.

A rate cut in Australia would give Europe the nod to reduce rates as well. Australia’s economy remains a major siphon for quantitative measures in the United States and Europe. Keeping the spread as thick as possible will allow the European Central Bank more room in inflating the Euro without driving up local prices.

Australia already shows the effects of large-scale capital flows. Hiring is accelerated, and investment in the country’s vast commodity resources appears to be unlimited. However, few on the continent have forgotten the short-term boom in interest rates following the 2009 financial crisis. As investors brought cash home, the Australian economy suffered an immediate loss of capital at a rate which pushed consumer interest rates to 9% or higher. Australia does not have an institutionalized 30-year fixed mortgage rate like the United States. Higher rates immediately affect all households in the Australian economy.

Odds-On Wagers for Rate Cuts

Gauging the European Central Banks’ next move has never been as difficult as it is today. On one hand, the ECB has higher inflation rates than its charter would allow. On another hand, the banking system seems primed for failure without intervention.

Even more difficult to comprehend is the ECB’s willingness to stay true to its word. The economic union behind the ECB was formed on the basis of having very stringent sovereign debt and deficit rules guiding participation. If the ECB were to operate true to its charter, few countries in the union before the financial crisis of 2008 and sovereign debt crisis of 2010-2011 would still be in the union today.

Going forward, expect looser lending standards, greater internalization of externalities in banking bailouts, and lower effective interest rates, pushed down by an excess of freshly created capital. Even if the ECB keeps the headline rate low, privileged banks will still have access to credit from the ECB’s backdoor lending windows. And ultimately, more currency flowing toward commodities and precious metals.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules