Tuesday, February 28, 2017

Jim Rickards: European Central Bank to Tighten Later This Year

Jim Rickards joined CNBC’s The Rundown to offer his analysis for 2017 and what expectations for the European Central Bank (ECB) may be under rising Eurozone inflation and various regional factors.

Rickards began the conversation by weighing in that, “Mario Draghi is my favorite central banker, I think he is the only one who really understands central banking.” Draghi is the current head of the European Central Bank and a former Goldman Sachs banker who began his term as leader of the ECB in November 2011. Rickards went on to remark, “Central banks are actually not that powerful but they have been given a pretense. Mario Draghi says little, and does less. That is a very effective way of operating.”

Jim Rickards is the New York Times bestselling author of The Road to Ruin. Rickards has worked previously on Wall Street for several decades and has advised the U.S intelligence community on topics surround currency wars and capital markets.

“(Mario Draghi) has a famous phrase” regarding the European Central Bank (ECB) stepping in to support the European common currency by saying he will do “whatever it takes – three words – and he single handedly saved the euro. I think his language, posture and demeanor is exactly right. Mario Draghi is sending a message. They (ECB) will have to tighten before September. As he said, not yet, we will get around to it.”

The CNBC commentator then shifted gears to ask Rickards for his insights on the sudden rise in inflation within the Eurozone and what the ECB will do in response Jim Rickards notes, “There will be tightening. The thing about inflation in Europe is it is focused through Germany at the moment. Germany is very hawkish on this. German Finance Minister Wolfgang Schaeuble has been complaining about it, but Draghi’s mandate is European and not limited to Germany.”

“This is only of the many problems of the European monetary union, and to a greater extent the Eurozone. You can have deflation in one country and inflation in another country. Which is what happened when Greece was collapsing, though it is not so bad right now. Germany is a little bit hot, but you’ve got other countries including among them Greece, Italy and others where it is a little cooler.”

When asked what specific areas that the head of the European Central Bank might be focusing his attention on Rickards indicated, “He’s got to look at average inflation across the entire Eurozone. That is why Draghi didn’t tighten now.

In getting specific on where Draghi’s primary concern for 2017 will be Rickards turned to Germany and the political environment, “The reason I say the Mario Draghi will tighten later is because average inflation might not be that high, but there is an election in Germany coming up later this year. (Draghi) doesn’t want to lose Angela Merkel. She has been a big supporter of his, so he will do what it takes.”

“The German voter is going to vote on German inflation, not European inflation. While Draghi cares about European inflation, he is going to have to do something to make sure Merkel doesn’t lost.”

- Source, Craig Wilson via the Daily Reckoning