Saturday, July 30, 2005

Euro-zone money suppy and credit growth accelerates further

The ECB released this Thursday new statistics which shows that growth of the money supply as measured by M3 rose further to 7.5% in June this year from 7.3%, with M1 and M2 accelerating even faster from 10.1% to 10.5% and from 7.6% to 7.9% respectively.

Credit growth to the private sector also accelarated from 7.5% to 7.9%. This further shows the absurdity in characterising the ECB as inflation hawks and attributing growth problems to "tight monetary policy". In fact the ECB pursues a far too inflationary policy who have created distortions, in the form of for example housing bubbles in many markets, which have weakened the European economy. The ECB should therefore raise rather than cut interest rates. Ultimately though, only a gold standard is likely to prevent this kind of destructive inflationary policy.


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