Europe’s hot new export is deflation
Opinion: Falling prices will make global debt crisis explode again
LONDON (MarketWatch) — For all its economic troubles, the euro zone remains a great exporting powerhouse, making a vast range of products that sell well around the world. Germany has its top-of-the-range cars, France its wines and aircraft, and Italy its food and fashion. But now Europe is exporting something that is going to be very damaging to the global economy — deflation.
Prices have already started to tumble across a range of European countries.
DYI Comments: Until Boomers have exited from the work force in numbers (2020's) but continue to consume creating the seeds of a labor shortage low inflation/deflation will occur. Continue to expect sub par GDP growth under 2.0%, low interest rates with some form of stimulus packages coming out of Washington.Stuff getting cheaper — most consumers will think that is just fine. In a healthy economy, it often is. In the euro zone, however, it is not. There are two reasons.One is that all the peripheral countries within the euro EURUSD +0.1004% have crippling levels of debt. Deflation makes that much, much worse — the debt stays the same, but the income to service it keeps falling. The second is that all of them also have to claw back competitiveness with Germany by cutting wages. That is painful enough in normal circumstances. With deflation, you have to cut wages even more to ever have a chance of getting back into the game. Falling prices take a bad situation — and make it a lot worse.
It appears that MarketWatch is advocating that the European Central Bank print like mad men in order to create a rise in inflation. This is only good for the bankers who will receive the bulk of the new money first which at that time will not be inflationary. As the Euro's move through the economy the general populous will end up with inflated Euro's; they will be stuck with the bill for the bankers reckless behavior. It is nothing more than a banker bail out. I'm surprised that MarketWatch is being a shill for European bankers for what is needed is debt restructure by taking haircuts and stretching out of payments. Printing one's currency until inflation occurs is not only bad economics (reducing middle class net worth) but a form of legalized fraud.
**********************************
DYI Comments: Below are two articles regarding gold which has sold off significantly. For those of you who need to rebalance by taking profits from this high flying stock market the mining stocks are good value as they have taken a pounding greater than the physical metal. Gold as measured by the Dow/Gold ratio is pricey at at 12.22 to 1. However, gold's secular bull market has not completed it's journey to massive overvaluation.
No comments:
Post a Comment