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  • Europe already has one foot in 'Japanese’ deflation grave

    From telegraph.co.uk

    The EU authorities would do well to study Professor Irving Fisher's seminal paper from Econometrica in 1933, The Debt Deflation Theory of Great Depressions. The central argument should by now be self-evident, though a certain sort of mind had trouble grasping it then, just as it does today. If the price level is falling - the "swelling dollar" in Hoover's America - the real burden of the debt keeps rising. Deflation may seem relatively benign in "low-debt" countries at certain times, though less benign than claimed by a rentier class that lives off coupons. People forget that it was a major cause of the American ... (full story)

...so, no lift in the bank base-rate this decade
  • Post #2
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  • Edited Oct 24, 2013 5:06am Oct 23, 2013 6:00pm | Edited Oct 24, 2013 5:06am
The ECB can't ignore Deflation forever.
The German production lines will eventually stop because Europeans won't have money to buy German products and the EUR will be too expensive so exports will slow down further.

There are only 2 solutions:
1. Let the EUR slide
2. print money to finance projects and to buy back debt.
They are all trapped in a vicious debt spiral and can't they see the forest for the trees.
Where is growth going to come from when they're all reducing spending?
France already requested for a devaluation of the EURO
Quoting billv
Where is growth going to come from when they're all reducing spending?
Precisely!! That is where the whole Merkel austerity plan falls apart.....one cannot 'austerity' their way to prosperity!!
Cue stories predicting the break up of the euro.... again.
Quoting realjumper
Precisely!! That is where the whole Merkel austerity plan falls apart.....one cannot 'austerity' their way to prosperity!!
You are right there. However there is a line of thought which says that one should not spend more than one has. Somewhere in the middle is the solution. Governments should not habitually spend more than they take in taxes because the following generations will pay the price. However the consequence of 'getting it right' is that your currency becomes very strong and kills exports and eventually also manufacturing jobs.
Spend your way into prosperity is Keynesian theory. The part of Keynesian theory that is always forgotten is that when the going is good, you are supposed to save money so that you have something to spend when times get hard.
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  • Posted: Oct 23, 2013 5:07pm
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     Newsstand
    Category: Fundamental Analysis
    Comments: 7  /  Views: 1,427