Post Tagged with: "deflation"
Is Finland Really A Closet Member Of The Eurozone Periphery?
The country’s debt dynamics are far from unsustainable at this point, but given the weakening in the country’s export performance and the steady unwinding of the housing boom we can now anticipate I would expect growth to be weaker than either the EU or the IMF are currently anticipating, and pressure on the country to increase fiscal spending to maintain expectations to rise, with the implication that pressure on the Finnish spread over 10 year German bunds will continue, as the country risks drifting off from being part of the core towards the growing periphery, at least in the eyes of investors
Central Bank Action Not A Solution
European leaders will meet again on December 9th in an attempt to come up with the solution. The important point, though, is that the probable solution would call for European nations to surrender some sovereignty over fiscal policy to a higher authority dominated by the stronger EU nations, particularly Germany. In addition, the new fiscal policy would amount to more austerity. Given that the people in the weaker nations have already been rioting against the austerity programs proposed by their own governments, how will they feel when that austerity is imposed from the outside? And even if these obstacles were overcome, the result would be highly restrictive. As we have repeated ad nauseam, the overall problem is too much global debt. The policy solutions are inherently deflationary and will result in slow growth and disappointing market returns for years to come
You couldn’t inflate, even if you wanted to
So here we are, with the ECB demanding deflationary austerity from the member nations in return for the limited bond buying that has been sustaining some semblance of national government solvency, not seeming to realize it can’t inflate with its monetary policy tools, even if it wanted to
Will internal devaluation work?
My friend Rob Parenteau doesn’t think it will. His argument against it is similar to the one I have been making about the origins of this crisis. Here’s what I said
Manufacturing inflation in a wage deflationary environment
How does manufacturing CPI inflation benefit an economy in which incomes are falling? When inflation rises and incomes are stagnant or falling, the economy rolls over
The Golden Constant
The following is a brief outline of “Gold and the ‘Flations,” published in the April 2005 Gloom, Boom & Doom Report.
General talk has it that gold is a hedge against inflation. We might take this a step further and conclude that a unit of gold will purchase a constant basket of goods when prices are inflating. Standard advice does not include gold in one’s asset mix during non-inflationary periods. The evidence presents a more complicated picture
Japan: Yen upside risk on deflation threat
More broadly, the recovery from the March tragedy appears to be running out of steam. Retail sales which surged in the April-June period fell in both July and August and deflation appears to be threatening again. The year-over-year pace of national CPI is expected to slip back to 0.1% in August, when reported in early Tokyo on Friday. The Sept readings for Tokyo are expected to be -0.2% year-over-year
IMPORTANT: Long-term interest rates are a series of future short-term rates
On how the expectations theory of interest rates explains why debt-induced depressions are fundamentally deflationary in nature
The prospects for inflation have not been smaller since 1930
Just where are all those borrowers who are willing and able to borrow the $2 trillion or $20 trillion that hyperventilators believe banks want to lend? The US private sector (firms and households) have instead ramped up their net savings—they are not borrowing, they are not even spending their diminished income. They are scared. They are (rationally) tightening belts, paying down debt, and accumulating claims on government and banks. In short, the prospects for inflation have not been smaller since
Debt is the Problem and Private Debt is Even More of a Problem
Comstock Partnrs writes that its fund is currently positioned to benefit from a declining stock market. This bearishness is mostly due to the enormous debt built up over the last few decades (total debt-including private debt– was $11 trillion in 1984 and grew by over $40 trillion to over $52 trillion today). Of that $40 trillion increase over 27 years, $26 trillion came in the last decade
US real 10 year yields at record 225bpt discount to JGBs
PIMCO, the world’ largest bond fund call this suppression of yields financial repression because it means savers and bond investors get negative real returns. However, John Hempton pointed out that in Japan, where this monetary policy is well-advanced, deflation has set in and real yields are positive despite the zero-rate interest policy (ZIRP)