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The Deflation Calamity Howlers Are Dead Wrong—-In Europe And Everywhere Else
The Deflation Calamity Howlers Are Dead Wrong—-In Europe And Everywhere Else
The calamity howlers of deflation are out in force this morning owing to an absolute economic non sequitur. Namely, that year-on-year consumer prices in the EU came in at negative 0.2% in December, implying that ECB printing presses need to go into immediate overdrive.
Well, of course the CPI has momentarily weakened. Crude oil has experienced a monumental plunge of more than 50% since mid-2014. That has temporarily dragged down the euro zone’s reported CPI and the math isn’t all that complex. During the last 12 months, euro zone energy prices have fallen by 6.3%, and everything else is still 0.6% higher than a year ago.
So what’s the emergency? This is the very same CPI blip that occurred when oil collapsed in the second half of 2008. As is evident below, that episode did not generate some cascading plunge into economic darkness. In fact, the Eurozone CPI was back running above 2.5% in no time.
The truth of the matter is that the EU-19 is in clover because it’s consumers get a big break; and, on the other side of the economic equation, it produces almost no oil. Europe’s production is mainly in the UK and Norway and they have their own currencies.Accordingly, the ECB should be putting its printing presses on an extended sabbatical and declaring victory on the achievement of its “price stability” objective.
…click on the above link to read the rest of the article…
And That Successfully Concludes “Big Brother 101”
And That Successfully Concludes “Big Brother 101”
Desperate to spin Europe’s deflation, pardon “negative inflation” pardon the lack of impulse to go ahead and spend money you don’t have right here right now, into a good, if only for Keynesians, thing? Don’t worry – we’ve got you covered. Below is a sampling of perfectly contradictory Reuters headlines all posted within a spin of 10 minutes, which should send you well on your way to propaganda nirvana.
And that successfully concludes Big Brother 101.
Source Reuters, Reuters, and… Reuters
h/t @RudyHavenstein
Eurozone economy enters deflation
Eurozone economy enters deflation
In spite of all the warnings and the predictions to the contrary, the eurozone economy slipped into deflation in December, according to estimates published by Eurostat today (7 January).
It estimated that inflation in the eurozone in December was -0.2%, dragged down in particular by falling oil prices. Energy costs fell by 6.3% in December.
The reading will put further pressure on the European Central Bank (ECB) to launch fresh monetary measures and in particular a programme of quantitative easing. Its next decision-taking meeting is scheduled for 22 January.
Under such a programme, trialled successfully by the central banks of the United States, Japan and the United Kingdom over the last few years, the ECB would buy up government bonds, injecting money into the eurozone economy with the aim of pushing up growth and inflation.
…click on the above link to read the rest of the article…
Game Over Japan: Real Wages Crash Most In 21st Century, Savings Rate Turns Negative | Zero Hedge
Game Over Japan: Real Wages Crash Most In 21st Century, Savings Rate Turns Negative | Zero Hedge.
When about a month ago it was revealed that Japan’s shadow economic advisor is none other than Paul Krugman, we said it was only a matter of time before the Japanese economy implodes. Terminally. We didn’t have long to wait and last night the barrage of Japanese economic data pretty much assured Japan’s transition into failed Keynesian state status.
In fact, after last night’s abysmal Japanese eco data, we doubt even the most lobotomized Keynesian voodoo priests have anything favorable left to say about Abenomics: not only did core inflation miss expectations and is now clearly in slowdown mode despite Japanopenly monetizing all gross Treasury issuance, not only did industrial production decline 0.6% missing expectations of an increase and record its first decline in 3 months with durable goods shipments crashing, not only did consumer spending plunge for the 8th straight month dropping 2.5% in November (with real spending on housing in 20% freefall), but – the punchline – both nominal and real wages imploded, when total cash wages and overtime pay declined for the first time in 9 months and 20 months, respectively.
And the reason why any poll that shows a recently “re-elected” Abe has even a 1% approval rating has clearly been Diebolded beyond recognition, is that real wages cratered 4.3% compared to a year ago. This was the largest decline since the 4.8% recorded in December 1998. In other words, Abenomics has now resulted in the worst economy, if only for consumers, in the 21st century.
Do Falling Oil Prices Raise The Threat Of Deflation?
Do Falling Oil Prices Raise The Threat Of Deflation?.
The spectacular drop in oil prices means that inflation is going to fall even further below the Fed’s 2% target. Does that raise any new risks for the economy? I say no, and here’s why.
Year-over-year percent change in the monthly deflator for personal consumption expenditures. Source: FRED.
In economists’ theoretical models, inflation usually is often thought of as a condition in which all wages and prices move up together by the same amount. For a given nominal interest rate, the lower inflation, the higher is the real cost of borrowing. With the short-term nominal interest rate still stuck at zero, a decrease in inflation could discourage spending, something the Fed would rather not see happen in the current situation. Or so the theory goes.
Related: Low Oil Prices Killing Off Fuel Subsidies
But typically, consumers often have something very different in mind when they talk about inflation. Many people think of inflation as a condition where the cost of the goods and services they buy goes up but their wages do not. Not so surprising then that while the Fed says it wants more inflation, most consumers say they do not.
How Japan Bankrupted Itself – The Globalist
How Japan Bankrupted Itself – The Globalist.
Following the start of Abenomics in 2012, Japan moved back to the center of attention of global financial markets. After two and a half decades of economic stagnation, hopes were high that Japan would escape its long stagnation and deflation.
Plenty of economists around the globe hoped that, in so doing, Japan would show the western world, mainly the Eurozone, the way to do the same and avoid a similar long period of low growth and stagnating incomes.
Conversely, the failure of Abe’s plan for Japan’s recovery would not only be a disaster for the country of the rising sun.
It would also be very bad news for central bankers and politicians in the west as well. It would prove that Keynesian policies don’t work in a world of too much debt and shrinking populations.
To assess the probabilities of these scenarios, it is worthwhile to have a deeper look on how Japan ended up in the current economic malaise.
2014 Year in Review – David Collum | Peak Prosperity
2014 Year in Review – David Collum | Peak Prosperity.
Every year, friend-of-the-site David Collum writes a detailed “Year in Review” synopsis full of keen perspective and plenty of wit. This year’s is no exception. As with past years, he has graciously selected PeakProsperity.com as the site where it will be published in full. It’s quite longer than our usual posts, but worth the time to read in full. A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline. — cheers, Adam
Background
“I don’t write about what I know: I write to find out what I know.”
~Patricia Hampl
Every December, I write a Year in Reviewref 1–7 first posted on Chris Martenson’s website Peak Prosperityref 2with a secondary posting at Zero Hedge.ref 3 What started as a brief introspective shared with a handful of e-quaintances has mutated into a detailed account that has accrued as many as 100,000 clicks. Each year I try to identify themes in events that evolve. As the title suggests, I have not seen a year in which so many risks—some truly existential—piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. Groping for a metaphor—I love metaphors and similes—I feel like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows.
“If the world seems to be turning ’round faster than ever, you’re not alone. Grab hold of something, it shows no sign of abating.”
~Josh Brown, CEO of Ritholtz Wealth Management
The Implosion of American Culture | philosophyofmetrics
The Implosion of American Culture | philosophyofmetrics.
It was widely expressed by the mainstream media of the time that the collapse of the Soviet Union and the fall of the Berlin Wall could not have been predicted. In hindsight, the stagnation and drop in oil prices should have been the obvious signs that a dramatic change was coming. And when the USSR began to borrow from western banks, the fix was in.
Western banks is something of a misnomer, as no bank, or conglomerate of banking interests, can exist separate and independent of the larger international banking structure which has been built throughout the the 20th Century. Stagnate growth and the deflationary oil prices which began in 1986 acted as fine toothed methods of transferring wealth from the social trust within the Soviet Union, forcing banks within the USSR to borrow from western banks, which was in fact an exchange of assets amongst financial institutions.
The inevitable policy shifts towards “perestroika” were obvious and planned well in advance. The agricultural crisis within the country was designed to parallel the mass movement towards “glasnost”, or openness.
When we consider the larger mandates of the CSI, Cultural and Socioeconomic Interception, the same machinations as “perestroika” and ‘glasnost” can be observed in the social fragmentation and devolution of the American middle class. Where the Soviet Union enacted policies which instigated the CSI changes within the country, it will be Americas lack of enacting policy change which will precipitate the implosion of its culture.
…click on the above link to read the rest of the article…
Does QE Create “Deflation”? |
Does QE Create “Deflation”? |.
Malinvestment vs. Overinvestment
Recently we have come across a very interesting article by Lee Adler, which discusses the connection between the Fed’s money printing activities and the shale oil boom. In this context the possibility is mentioned that QE may actually contribute to “creating deflation”.
Obviously, we agree with many, in fact with the vast majority of the points made by Lee Adler in his article. Money printing always diverts investment into lines that later on turn out to be unprofitable, precisely because it distorts relative prices in the economy. Lee Adler should also be commended for drawing attention to the fact that the money relation – i.e., the purchasing power of money – depends not only the money side of things, but also on the goods side.
In an unhampered market economy in which a market-chosen money is employed, it would be reasonable to expect that prices will tend to gently decline over time, as productivity increases will as a rule exceed whatever additions to the money supply occur (for instance, if gold were still used as money, its supply would increase by roughly 1.4% per year and it is a very good bet that economic productivity would be rising at a faster pace).
Thus, a mild, persistent decline in the prices of most or all goods and services is a hallmark of a progressing economy. Needless to say, anyone who has observed the computer industry in the wider sense over recent decades – the productivity growth of which has been so large it actually outpaced the effect of money printing on prices – will realize that no business needs rising consumer prices to thrive, and that consumers do not “postpone their purchases” due to falling prices. The entire idea that a “deflationary spiral” could somehow harm the economy is erroneous (however there is a reason why today’s policymakers are afraid of falling prices, which we will briefly discuss below).
…click on the above link to read the rest of the article…
oftwominds-Charles Hugh Smith: Central Banks Create Deflation, Not Inflation
oftwominds-Charles Hugh Smith: Central Banks Create Deflation, Not Inflation.
Financial and risk bubbles don’t pop in a vacuum–all the phantom collateral constructed with mal-invested free money for financiers will also implode.
If there’s one absolute truism we hear again and again, it’s that central banks are desperately trying to create inflation. Perversely, their easy-money policies actually generate the exact opposite: deflation.
…click on the above link to read the rest of the article…
Deflation v Inflation – Comprehending What Will Come | Armstrong Economics
Deflation v Inflation – Comprehending What Will Come | Armstrong Economics.
QUESTION: Martin,
While I clearly understand your reasoning for deflation in the US allied to a very strong dollar; does the opposite apply to those countries, like the UK and European economies where their currencies are likely going into freefall?
Keep up the brilliant work. Is the movie coming to the UK?
AB
ANSWER: Yes. Britain abandoned the Gold Standard first during the Great Depression and its economy end the deflation and was the first to recover. This was one of the very arguing point of George Warren to devalue the dollar to Roosevelt to reinflate the economy. Germany has imposed deflation on everyone really tearing the European economy apart because they do not understand why they even went into hyperinflation.
The rise in the dollar in the US as other other economies were defaulting pushed the USA into a deflationary depression. This then set in motion protectionism as they failed to understand the mechanism unfolding.
…click on the above link to read the rest of the article…
Deficit Spending And Money Printing: A German Point Of View | Zero Hedge
Deficit Spending And Money Printing: A German Point Of View | Zero Hedge.
Deficit spending And Money Printing: A German point of view
The leading macroeconomic Nobel-Laureates, the Central Bankers as well as most Politicians have reduced their economic judgment on how to get the economies in Europe and Japan back to sustainable growth on just two recipes: public investments in infrastructure to be financed by additional public debt and, second, an expansive money market policy based on printing more money and reducing interest rates to zero or even beyond zero to negative rates!
And if the capital markets don’t swallow additional public debt, then the Central Banks will step in eagerly as Investors – regardless if this is in line with their statutes!
The expected results, backed by the leading macroeconomic wisdom, should be to kick-start economic growth, to induce private industry to invest and banks to lend to private investors, and thereby to reduce unemployment, and get deflationary tendencies back to an inflation rate that is now officially regarded as ideal if it oscillates around 2 % p.a. When and why this “two-percent” benchmark was introduced for the first time I can’t remember, but everybody today takes it for granted and repeats it like as an undisputed target of Central Bank’s money market policy. Included in this assumption is ever more public debt as the guarantor for lasting GDP-growth!
I never understood why macroeconomics should be regarded as an academic discipline if it is in practice reduced to these rather simple theories of how to handle a recession or even deflation! Maybe Alfred Nobel was just as clear-sighted as I am, and consequently never introduced a Nobel-prize for economics. That was done after his death by the Central Bank of Norway, which also contributed the required funds. It still does so, and not the Nobel foundation!
…click on the above link to read the rest of the article…
As It Turns Out Deflation Is Good After All | Zero Hedge
As It Turns Out Deflation Is Good After All | Zero Hedge.
Earlier today, in typical German fashion, the chief of the Bundesbank poured cold water on Europe’s latest round of demands that Germany carry the weight of the rebound from the triple-dip on its shoulders, as usual, when Buba President Jens Weidmann Friday rejected calls for a German stimulus plan, saying only structural reforms and more competitiveness would kick-start eurozone economies. “Calls for a public fiscal stimulus plan in Germany to boost the Eurozone economy are amiss,” said Mr. Weidmann in a speech for an economic summit hosted by the German newspaper Süddeutsche Zeitung. He is, of course, right: the longer Europe’s insolvent, uncompetitive governments kick the can and force Germany to do all the hard work, the longer Europe will be unable to get out of a hole that gets deeper with every passing day. In short: Mr. Weidmann refuses to “get to work” for a bunch of corrupt, clueless politicians.
He then proceeded to do something shocking: he was logical. Quoted by the WSJ, he said: “Investment rates that are above the growth potential of a developed economy aren’t likely to boost prosperity—this applies to both public and private investments.”
More:
…click on the above link to read the rest of the article…
charles hugh smith-Central Banks: When We Succeed, We Fail
charles hugh smith-Central Banks: When We Succeed, We Fail.
Goosing stocks ever higher will eventually push wealth inequality to the point that it unleashes social instability.
Central banks around the world share a few simple goals:
1. Defeat deflation by sparking inflation–in the cost of goods and services, not wages.
2. Weaken the currency to boost exports and counter beggar thy neighbor devaluations by other exporting nations and trading blocs.
3. Boost the value of stocks to keep pension plans afloat and project a politically powerful message of “growth” and “prosperity.”
What no central bank dares say is what happens should they manage to boost inflation, devalue their currency and continue pushing assets higher: when we succeed, we fail.
Consider the consequences of juicing inflation: every click up in inflation further reduces the purchasing power of wages, which do not keep up with inflation in a world of labor surplus.
When central banks succeed in jacking up inflation, they will fail the households and enterprises whose income is stagnating or declining:Were European Central Bank head Mario Draghi honest, here is what he would say:
…click on the above link to read the rest of the article…
Moneyness: Sign Wars
Does a lowering of a central bank’s interest rates create inflation or deflation? Dubbed the ‘Sign Wars‘ by Nick Rowe, this has been a recurring debate in the economics blogosphere since at least as far back as 2010.
The conventional view of interest rate policy is that if a central bank keeps its interest rate too low, the inflation rate will steadily spiral higher. Imagine a cylinder resting on a flat plane. Tilt the plane in one direction —a motif to explain a change in interest rates—and the cylinder, or the price level, will perpetually roll in the opposite direction, at least until the plane’s tilt (i.e. the interest rate) has been shifted enough in a compensatory way to halt the cylinder’s roll. Without a counter-balancing shift, we get hyperinflation in one direction, or hyperdeflation in the other.
The heretical view, dubbed the Neo-Fisherian view by Noah Smith (and having nothing to do with Irving Fisher), is that in response to a tilt in the plane, the cylinder rolls… but uphill. Specifically, if the interest rate is set too low, the inflation rate will jump either instantaneously or more slowly. But after that, a steady deflation will set in, even without the help of a counter-balancing shift in the interest rate. We get neither hyperinflation nor hyperdeflation. (John Cochrane provides a great introduction to this viewpoint).
Many pixels have already been displayed on this subject, about the only value I can add is to translate a jargon-heavy academic debate into a more finance-friendly way of thinking. Let’s approach the problem as an exercise in security analysis.
…click on the above link to read the rest of the article…
