Impacts
Inflation through the troubled energy sector represents a likely scenario for a malicious currency attack and armed conflict.
Jodi Liss, International Affairs Professional Secretary/Executive Assistant at Liss and Lamar, P.C. and Student at Tulane University, 08, Making Monetary Mischief: Using Currency as a Weapon World Policy Journal 24 no4 29-38 Winter
Third, the perceived relationship between politics and economics has become uncoupled, especially in industrialized countries, with less official oversight or control.
And, fourth and finally, the rise of electronic banking and trading has increased the access and speed of transactions by millions of people, while the rise of offshore funds has put large sums of money out of sight of regulators. The increasing lack of transparency has made it difficult, if not impossible, to keep track of who is investing what or how much, or to prevent unseen actors from withdrawing at a strategic moment.(FN4) (The discovery that a rogue trader had pulled off a $7 billion fraud at Societé Generalé this past winter by hiding trades of European stock index futures shows, if nothing else, just how difficult it can be to keep tabs on financial transactions.)
A currency attack could hypothetically start with a state or with a large non-state actor, such as a drug cartel or terrorist group. Its purpose could be to weaken a rival in anticipation of, or during, armed conflict; to punish another state for perceived economic, military, or political infractions; to hobble or distract a potential ally of an adversary; to cripple a potential competitor; or to attack or counterattack a stronger state that has substantial internal financial weaknesses.
There are at least four scenarios in which a malicious currency attack might unfold. These include taking advantage of currency dependence; manipulation through a troubled banking sector; massive dumping of reserves of overvalued currency; and the use of rumor and innuendo to harm another state without actually doing anything.
Attempts at controlling inflation fail and hurt output and economic growth. The best alternative is to simply reject the plan and allow the market to fix itself
William Poole, President, Federal Reserve Bank of St. Louis, Global Interdependence Center (GIC) Abroad in Chile Conference, 5/5/07, Universidad Adolfo Ibáñez, Keynote Address, Santiago, Chile
The goals of maximum sustainable employment and economic growth, stable prices, moderate interest rates, and financial stability are too often viewed as incompatible with one another. Conventional wisdom holds, for example, that if monetary policy is too focused on controlling inflation, then output and employment growth will likely fall below their potential and financial markets will be less stable than they otherwise could be.
Today, I will elaborate on how I see inflation, financial stability and economic growth fitting together in a coherent framework for monetary policy. I do not subscribe to the conventional wisdom. Neither events nor economic theory support the notion that a monetary policy directed toward price stability will result in a less stable financial system or an underperforming real economy. Rather, in my view, price stability, financial stability and economic growth are mutually consistent goals for monetary policy. Further, I believe that price stability must be the paramount objective for monetary policy because without price stability, the goals of maximum employment, moderate interest rates and financial stability will be more difficult, if not impossible, to achieve.
Inflation cannot be combated due to the global nature of high energy costs
Simone Meier, Frankfurt Staff Writer, Bloomberg News, 6/26/08, “Inflation in Three German States Accelerates On Oil” http://www.bloomberg.com/apps/news?pid=20601100&sid=a6gKJN7OSfLI&refer=germany
Adding to signs of inflation pressures, German import prices increased the most in almost 18 years in May, the Federal Statistics Office in Wiesbaden said today. Euro-region money- supply growth unexpectedly held its pace in May.
Slowing Growth
``The ECB has a huge problem because it can't even fight the main reason for inflation, which is of a global nature,'' said Andreas Scheuerle, an economist at Dekabank in Frankfurt. ``The only thing they can do is to prevent second-round effects from emerging.''
German Economy - Link
Soaring Oil Prices Threaten German Economy
BusinessWeek, 5/30/08, ‘Germany: Soaring Oil Threatens Economy’ http://www.businessweek.com/globalbiz/content/may2008/gb20080530_827474.htm?chan=rss_topDiscussed_ssi_5
What is really worrying Germans, though, is the fear that this "oil price madness," as Germany's mass-circulation daily Bild calls it, could become a permanent condition. In the past, energy prices would shoot up but then drop again, and people didn't necessarily feel poorer. Now, though, it seems that Germans' energy bills will continue to grow faster than their incomes and that the price hike for oil, natural gas, gasoline and electricity will begin threatening economic well-being.
For economists and consumers alike, all previous calculations are now out the window. Whereas earlier a majority of experts predicted robust growth for 2008, they now see an economy in serious danger.
High oil prices and commodity costs could cause German recession during a period of international high oil demand
Renee Wagner, Write-in Writer, John Reuters News, 7/18/08, “German Family Firms Fear recession”, http://www.guardian.co.uk/business/feedarticle/7660856
"Germany risks slipping into recession," ASU President Patrick Adenauer told Reuters in an interview on Thursday, adding the rising cost of commodities, which is driving high inflation, were the main reasons the economy risked contracting.
"They depress consumption, and investment with it," he said, predicting a rising number of corporate bankruptcies.
German producer price inflation accelerated in June to its strongest level since March 1982, pushed by a strong rise in the cost of energy, official data showed on Friday.
The global financial crisis had also raised credit costs, which would have a tangible impact on the economy sooner or later, said Adenauer, whose association represents about 5,000 family businesses.
The European Central Bank has indicated it may have to repeat July's quarter-point interest rate rise if higher oil and commodity costs feed through into wage deals and the cost of other goods and services, prolonging what it hopes will be a temporary rise in inflation.
Germany last experienced recession -- usually defined as two or more consecutive quarters of negative growth -- in 2004.
German Economy - Inflation
Inflation in Germany accelerates on oil
Simone Meier, Frankfurt Staff Writer, Bloomberg News, 6/26/08, “Inflation in Three German States Accelerates On Oil” http://www.bloomberg.com/apps/news?pid=20601100&sid=a6gKJN7OSfLI&refer=germany
Inflation in three German states accelerated in June, boosted by surging energy costs.
Consumer prices in North Rhine-Westphalia increased 3 percent from a year earlier after rising 2.8 percent in May, the state's statistics office in Dusseldorf said today. Economists expect German inflation to quicken to 3.3 percent from 3.1 percent when measured using a harmonized European Union method, the median of 27 forecasts in a Bloomberg News survey shows.
Rising food and energy costs are fueling inflation in Europe's largest economy, sapping consumers' spending power. European Central Bank President Jean-Claude Trichet reiterated yesterday the bank may raise its key rate from a six-year high next month to curb price gains, even as economic growth slows.
``Inflation remains a problem and that's why we expect the ECB to raise its key rate once more after July,'' said Matthias Rubisch, an economist at Commerzbank AG in Frankfurt. ``In Germany, inflation will probably peak at 3.5 percent in August, as long as we don't see further gains in oil prices.''
German Economy – Link Ext
High Oil Prices Pressure Germany to Seek Oil in Iraq
Press TV, 7/13/08, ‘Germany seeking oil in Iraq’, http://www.presstv.ir/detail.aspx?id=63520§ionid=351020
The economy ministry has declined to give further details about Michael Glos's visit but German weekly Bild am Sonntag reports that he is to meet with Iraqi Prime Minister Nouri al-Maliki Saturday to discuss issues on oil projects.
"No other country in the Middle East at the moment has such a large, untapped oil reserve," Glos was quoted as saying of Iraq in the magazine.
Germany opposed the 2003 US occupation of Iraq but has since attempted to actively take part in oil and reconstruction projects in the war-torn country.
European interest in Iraq, especially its massive energy potential, has grown. The European Union is negotiating an energy pact with Iraq, part of the bloc's efforts to reduce dependence on Russian oil and gas.
Glos has expressed alarm in recent months about the impact of higher oil prices on Germany's economic growth.
The rising cost of energy have pushed German inflation well passed perceived levels
Joan Clark, Write-in Writer, John Reuters News, 7/18/08, “Berman producer price inflation hits 26-year high” http://economictimes.indiatimes.com/Global_Markets/German_producer_price_inflation_hits_26-year_high/articleshow/3249124.cms
N: German producer price inflation in June accelerated by more than expected to its strongest level since March 1982, pushed by a strong rise in the cost of energy, official data showed on Friday.
Germany's Federal Statistics Office said prices increased 0.9 per cent month-on-month and rose 6.7 per cent year-on-year.
The mid-range forecast of 30 economists polled by media had predicted that prices would rise by 0.7 per cent month on month and annual inflation would accelerate to 6.5 per cent.
Share with your friends: |
