The downward spiral in the German bund market widened the Euro’s interest rtate advantage over the US dollar, leaving the greenback on shaky ground and vulnerable to speculative attack. Bernanke would be under heavy pressure to match a second ECB rate hike to 4.50%, to defend the value of the dollar. In essence, the ECB could hijack US monetary policy, and force the Fed to guide the federal funds rate higher, in order to shake-out speculators in the crude oil and commodities markets.
Gary Dorsch, When Central Bankers Clash, Stock Markets can Crash
This an example of the nonsense that one has to endure when reading articles by people who are very knowledgeable about the economy and totally ignorant about everything else-the curse of over-specialisation and expert-ism-here, for example, the ECB (European Central Bank) and the Fed (Federal Reserve) are put head to head and measured as if they exist in a political/historical vacuum.
To paraphrase Stalin’s question about the Vatican: How many aircraft carriers does the ECB has? I ask this question because the Fed has 12 of them, some stationed in Europe no less! The answer is: none [carriers are part of Carrier Strike Group, which consists of air wings (i.e. air force) and an armada of ships (i.e. navy) plus a marines component (i.e. army), a single group is stronger than most countries' armed forces].
When speculators start to sell dollars and buy euros the Fed will ask one of its Carrier Strike Groups to take out an oil exporting country off the market. Let’s say, for the sake of example, they take out Iran, the price of oil would shoot to unimaginable heights; the Europeans would be obliged to sell euros and buy dollars and when that fails they will be obliged to sell assets and buy dollars and when that fails they have to sell their gold reserves and buy dollars and when that runs out…(see: The Story of Europe).
Europe and Japan are inflated tigers; the US can prick them whenever it wants. China is no better position for the short term, but they do have long-term prospects, if they can keep their internal structure safe.
If the ECB wants a high noon confrontation with the Fed it will soon discover that its strongest weapons are lollipops compared with the formidable arsenal of the Fed. Before they commit such folly they should take a lesson from history: The emperor Trajan’s war on Dacia, was launched to replenish the empty coffers of the state and shore up the shaky grounds of the Denarius; Dacia was rich with mines and its king thought he could stand up to the Romans, unfortunately, for him, he didn’t have any real force to face 100,000 legionnaires-the usual Roman army was forty thousand strong, but such a force had already failed to take Dacia before and thus gave false hope to its king-the result was annihilation (see: When Gold is Worthless).
