MacroScope

Strong euro may be a monster Draghi can’t tame

Mario Draghi, President of the European Central Bank (ECB), addresses the media during his monthly news conference at the ECB headquarters in FrankfurtECB President Mario Draghi may have created a monster when he declared nearly two years ago that he will do “whatever it takes” to save the euro.

Given that Draghi has now openly pegged the outlook for monetary policy at least partly to the exchange rate, the prospect of both short-term and long-term investors buying the euro is a worrying obstacle for policy.

A rampant euro is anathema to the ECB’s narrow mandate, which is aimed squarely at getting very low inflation back to its target of just below 2 percent. A stronger euro keeps a lid on the price of everything the euro zone imports from abroad. And it makes everything it exports seem relatively more expensive.

The ECB now appears hamstrung between two outcomes, both pointing to a strong euro.

If the euro zone economy relapses from its broadening recovery, and inflation remains dangerously low, speculators may be tempted to try their luck and see how far they can take the euro before a reluctant ECB steps in with a response.

Beverly Hills, 9021-owe?

Anyone up for a $395 million Rodeo Drive shopping spree? 

Apparently the latest recipient of U.S. Treasury cash is the City National Bank in posh Beverly Hills.  According to the Los Angeles Times, the bank is taking part in the government’s $250 billion cash infusion and made no promises about how it would use the $395 million it’s getting.

The government funding “clearly enhances our financial capacity to make acquisitions and … to lend to a larger degree,” Russell Goldsmith, chief executive of City National Corp, told the newspaper.

About 20 banks are expected to announce soon that they’re getting government cash in exchange for preferred shares. Some members of Congress have complained that Treasury is handing over the money with too few strings attached, and they want stricter rules on how the banks must use the money.

Congress to banks: Eat your veggies

U.S. senators want bankers to eat their broccoli before gorging on taxpayer bread.

The Senate Banking Committee took a Treasury Department official to task for committing $250 billion of the $700 bailout money to buy stakes in banks without getting any guarantees that those firms wouldn’t pocket the cash or use it for acquisitions.

“I remain especially concerned that, in the Treasury’s zeal to make the capital injection program easily digestible for the banks, we’re feeding them a little too much dessert and not making them eat enough of their vegetables,” says New York Democratic Sen. Charles Schumer.