A Dissent is Taking Place between ECB Members...

Daily Forex Fundamentals | Written by ecPulse.com | Apr 15 09 11:51 GMT |

Looks like a dissent is taking place between the European Central Banks members, where some members are with slashing their benchmark below one percent yet others believe reducing rates would cripple markets rather than reviving back the money supply. The zone gloomy outlook is controlling members' actions; they no longer see a light at the end of the tunnel after the recovery postponed until the upcoming year. Axel Weber a member in the ECB said today, reducing rates below one percent would push money markets in “Standstill”, because extremely low rates would not be appealing for greedy investors to borrow money from banks, where they will start looking for other solutions such as what took place in the United States when the dot com bubble enlarged. In Greenspan's era rates was reduced to one percent just to revive growth, at that time investors across the globe who used to depend on returns from US treasuries believed that one percent is considered an extremely low rates. Due to that more methods and instruments was established in order to achieve higher returns but after time passed on the failure of that Era was evident now in our time. The European Central Bank would be facing two issues if they reduce their benchmark down to or below one percent, first of all investors taking money at those extremely low rates would be good for them but with time rates will starts to incline back again after tranquility begins to diffuse back. At that time, high rates will be an issue for investors where they will not be able to pay back the money taken at previously low rates. The other issue would be the establishment of new profitable instruments that could enlarge investors' gains, and here the dilemma would start any lack of control and monitoring in financial markets will create future instabilities that would cripple the zone financial market imitating the American mistakes. The European Central Bank who is responsible on monitoring markets must be careful in taking any further rate reductions because the disadvantages of those low rates would be larger than the advantages gained at the time being. After what I said interventions by using unorthodox methods would be the best at the time being even it would spur inflation, because containing surging inflationary pressures would be easier than the overall defaults in loans which would destroy a whole financial system like what we are living at the time being. Therefore, financial markets are at risk where movements most be considered step by step any vast actions would result into larger issues that would destroy the internal structure of the sixteen economies. So dear reader it all about time, till we see what would Trichet and his comment reach to a final decision and whether they would consider holding rates at the current levels however introducing other non-standard measures. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk