Bernanke, Draghi, And Inflation Creation Before The U.S. Elections
This week is an important trading week when it comes to central bank chatter and the possibility of massive inflation creation. The major stock indexes in the United States and Europe have been soaring higher since the famous speech by European Central Bank President Mario Draghi where he stated, “believe me the next action by the ECB will be enough”. Now the big question is going to be if Germany will go along with his potential new bailout plan. The one question that everyone must ask themselves now is why Germany would ever go along with this new plan when they are the only solvent country in the ECB. After all, given Germany's past history they have already felt hyperinflation and depression and that must still be in their history books.
Federal Reserve Chairman Ben Bernanke will give a speech on Friday morning from Jackson Hole, Wyoming. Many traders and investors are waiting to see what he will say regarding more easy money or QE-3. Will he pull the trigger on more stimulus with high oil and gasoline prices in place? Corn, soybeans, and other food prices are already trading at very high levels. Countries such as China, India, and Brazil are all moaning and groaning about the current level of inflation that is already in their economies. Many traders and investors are wondering what else the central bank boss of the world could do that would be more effective. The one thing that we all must admit is that just his jawboning about more stimulus has helped to lift the stock market indexes higher in the United States.
Yesterday, U.S. Senator Corker warned Ben Bernanke about adding more quantitative easing in an editorial. Is this just a warning that the Republicans do not want more stimulus ahead of the presidential election? Last night, was the start of the Republican National Convention. NJ Governor Chris Christie was the keynote speaker who talked about the current debt and financial problems that the United States is facing. Many in media were wondering why NJ Governor Christie did not talk more about candidate Mitt Romney. This could be another stealth warning to the Federal Reserve that they better not implement another stimulus program before the November elections.
Earlier today, Mario Draghi released an article in a German newspaper defending his Euro-bond plan. It seems that opinion editorials are how people get their message out to the public. Draghi stated, “The ECB is not a political institution, but it is committed to its responsibilities as an institution of the European Union. As such, we never lose sight of our mission to guarantee a strong and stable currency. The banknotes that we issue bear the European flag and are a powerful symbol of European identity.”
The German people are certainly going to have something to say about this statement. Some equities that are certainly going to be volatile over the next couple of weeks are the iShares MSCI Italy Index (ETF) (NYSEARCA:EWI), iShares MSCI Germany Index Fund (ETF) (NYSEARCA:EWG), iShares MSCI Spain Index (ETF) (NYSEARCA:EWP), and the iShares MSCI France Index (ETF) (NYSEARCA:EWQ).