Europe's Money Printing Press Gains Speed

Tuesday, September 27, 2005

After yesterday's ranting about the absurd growth in US money supply the same problem hits hard at home too. While the European Central Bank (ECB) is vigorously defending its mandate to keep the value of the Euro steady, money supply figures show a different picture.
The ECB today published another set of shocking money supply data (pdf). M3 growth accelerated to a record annual rate of 8.1 (7.9) percent in August, pushing the 3-month average to 7.9 percent. M1 is growing still faster with the annual rate accelerating to 11.5 (11.1) percent in August, driving the 3-month average to a new high of 11.2 percent. While these figures begin to come in at roughly double of what was the target for money supply growth they also point to growing inflationary problems in the Eurozone. GDP growth forecasts for 2005 deviate around the 1-percent mark while headline inflation is now at 2.1 percent - a figure every European consumer can only laugh about.
Money supply growing at more than 8 percent was last recorded during the German reunification in Europe. In short - there is too much money around for a stagnating supply of goods and services. Spell this i-n-f-l-a-t-i-o-n.
The ECB has not yet published its consolidated weekly financial statement for the last week, normally due at this time, that will tell about the activities of the Eurosystem members in the gold market. The new Central Bank Gold Sales Agreement kicked in yesterday.
UPDATE: There were no gold sales by the ECB members last week, the weekly statement shows. In the week before one European central bank had sold gold for 57 million Euros.
The ECB will revalue the gold reserves of its 12 members at the end of the current quarter. Currently the gold hoard is valued at 361 Euros per ounce and stands at 132.77 billion Euros. At the moment an ounce trades for 382 Euros. This would translate into a revaluation of 5.8 percent or to more than 145.7 billion Euros. The ECB members have kept the nominal level of their gold reserves more or less unchanged in the past 12 months by selling into price spikes.


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