Thursday, August 18, 2011

German Market Down 4.95%

European markets are plunging, led by the German DAX, which as I write it is down 4.95%.

The European Central Bank has retained a tight money supply in recent weeks and officials seem to be taking a lackadaisical attitude to the crisis. I warned about this in July in the EPJ Daily Alert:

...the ECB continues to tighten euro money growth.

The tight money policy will put the eurozone on the down leg of the business cycle...the current tight  money policy by the ECB is going to be no help to Greece and is going to intensify problems for the other PIIGS. For those trading the eurozone, consider shorting any stock market strength on news of a deal on Greece. The problems are much more
severe in the eurozone than just Greece.
Weak U.S. markets are likely a kneejerk  reaction from the Euro crisis, as Bernanke is pumping very aggressively in the United States.

Buckle your seat belt as the road is likely to get very bumpy. The Chinese stock markets are most likely to crash next.


  1. With Quantitative Easing 2 having ceased at the end of June, what Fed actions since are equivalent to printing new money? I know the $1.6 Trillion in excess reserves can multiply 10x via fractional reserve banking, so the potential for explosive money supply growth is clearly there. I’m not arguing by asking this question; I am genuinely interested in actions the Fed is taking to further expand its balance sheet.

  2. The Fed is simply continuing it's QE lite - the rolling over of maturing debt into new treasury buying. But apart from that, only the promise of cheap money for another two years is anything in terms of "help" they are providing. We shall see if that is the way it stays.

    Personally, I think the political hurdle for more QE is too high at this point. Even for an agency that considers itself above politics.

    As for Europe, hah! I would simply as them: How is that short sale ban you guys put in place working out for you?

  3. Isn't the tight monetary policy of the ECB actually good for the long term? Granted it may cause a recession in the near term, but having a solid and relatively non-expanding monetary base has got to be good for long term, right?