December 20, 2007 | posted by Michael Baxter in Sterling |

“It ain’t the rate of interest that’s the problem,” said Airbus Jean-Claude Trichet, yesterday, “it’s the lack of credit.”

You will recall, yesterday, the President of the European Central Bank took Helicopter Ben (Bernanke’s) idea for solving a credit crisis by scattering money across the land a step further. Mr Trichet and his ECB cohorts announced an extraordinary 349 billion euro cash injection, propting us to nick-name him Airbus Jean.

You would have thought, after pumping all that money out there, the ECB would be lowering interest rates soon. But yesterday the great cash splatterer told the European parliament “the risks to price stability over the medium term are clearly on the upside.” He also said that price stability requirements and the need to get banks to start lending again are separate issues.

Naturally, banks and commentators saw red at those words. Kevin Gaynor, Head of Economics and interest-rate strategy at RBS in London told Bloomberg “It can’t have temporary support for the market stretching into six months and yet maintain the fig leaf that monetary policy is based on an unchanged view of economic risks.”

But, Mr Trichet could be right. The crisis we are seeing at the moment is not down to official interest rates, it’s down to market interest rates. Central banks want us to lend and borrow at one rate. The markets are forcing this level higher although, by the way, interbank rates do seem to falling.

Meanwhile, in the US, Federal Reserve Bank of Richmond President Jeffrey Lacker said “Because the job of a central banker is to protect the purchasing power of currency, it is overall inflation that we need to keep down, not just core inflation…I am uncomfortable with the inflation picture.”

Yet, in the UK, after the Bank of England dropped a size 10 hint that interest rates are going to fall several times next year, markets started to work out the ramifications.

The pound fell. At the time of writing it stood at $1.99, the lowest level since June. We predicted yesterday that if the Bank of England really does slash interest rates next year, the pound is likely to be the casualty.

Not that this would necessarily be a bad thing. If the UK could find it is able to export its way to growth, that would be be good news indeed, although it could lead to more inflation.

But was we have said before, when both the US and UK suddenly start importing a good deal less, but export more, it is naive to believe the global economy can just carry on regardless.