ECB vs. the speculators
I’d get popcorn to watch ECB vs. the speculators, if the whole sorry story weren’t so sickening.
The European Central Bank is meeting today to figure out what the bleep to do about this mess in Europe (the press conference is happening as I write). In the lead-up to the ECB announcement, non-core bonds (like Spainâ€™s) were doing well in expectation that the ECB will have to step in to buy â€œperipheralâ€ bonds â€“ otherwise known as circling the wagons to support the countries that are coming under attack.
Of course, all of this volatility presents fabulous speculative opportunities. It is really hard to imagine how authorities can sustain any reasonable policy course when battered by these kind of hot money flows.
For a while I have been musing about various crisis scenarios and contagion transmission avenues, and one such scenario appears on Rabble today. I must say that capital controls designed to target tsunamis of hot money inflows are looking pretty good to me right now. And it would raise some cash â€“ which might be handy in the Eurozone at the moment. Seems like a better idea than just kicking Ireland in the teeth when it is down. Too bad the height of a speculative frenzy is the wrong time to realize that governmentsâ€™ need policy levers on the books to handle a major crisis.