The ECB is making the same mistake our Reserve bank has made.
Raising interest rate to fight inflation while the world is deflating at a rapid rate.
The ECB will start panicking like our Reserve bank shortly and start slashing rates.
from the Telegraph...
Joseph Stiglitz, the former head of the White House Council of Economic Advisers, said the crisis would cost the US $1.5 trillion over the next three years. But this is just the start. The downturn is engulfing most of the global economy.
"This has spread to Europe, and will probably spread to China," he said.
He said the European Central Bank was making a serious error trying to squeeze inflation. "There is no theoretical justification for this," he said.
"They seem to have recognised that there are other risks beside inflation, so there is a glimmer of hope," he said.
"A lot has changed since the wage-price spiral of the 1970s. Labour unions are weaker, and globalisation acts as discipline on wage demands," he added.
Mr Stiglitz said the watchdogs had failed to prevent the credit bubble because they were themselves captives of ideology. "There was a party going on and the regulator didn't want to be a party pooper. They encouraged people to take out floating-rate mortgages at 1pc."
"Banks didn't just fail to manage their credit risk, they created credit risk. We have to bear the consequences," he said.
