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The Four Horsemen Of Europe's Deflationary Threat
We recently noted that, despite all the hot money flows and self-congratulatory extrapolation, European macro data is collapsing (as opposed to supporting ideas of recovery). In fact, it is falling at the fastest pace in over a year as the prospect of the euro area falling into deflation may be increasing; as Bloomberg's Niraj Shah notes the single currency rises, growth loses momentum, money-supply expansion slows and bank lending stagnates. As Shah fears, that may push the region into a debt spiral as the real value of debt increases, marking a new phase in the crisis.
Inflation May Turn to Deflation
The pace of inflation has almost halved since the start of the year to a three-and-a-half year low of 1.1 percent in September. Core prices are near a record low of 0.8 percent at 1 percent. Greece is already experiencing deflation as prices fell at an annual rate of 1 percent in September. Spain’s 0.5 percent CPI rate may already be negative once the increase in the 3 percentage point rise in VAT is excluded.
Weak Credit Extension
The three-month average M3 money-supply growth stands well below the ECB’s reference rate of 4.5 percent. It slowed to 2.1 percent in September from 2.3 percent in the prior month. Credit extension is likely to remain weak as banks deleverage their balance sheets in preparation for next year’s Asset Quality Review and stress tests.
Deflation Risks Increase as Euro Strengthens
The strength of the euro will place downward pressure on prices. The Bank of International Settlements measure of the real effective exchange rate, which is deflated by the consumer price index, rose to 98.8 last month, the highest this year. The euro has risen 4.4 percent against the dollar this year.
Real Cost of Debt Servicing to Swell
Countries’ real debt will increase as they fall into deflation. The euro-area debt ratio already stood at 93.4 percent of GDP in the second quarter of 2003 versus 89.9 percent in the same quarter in 2012. Greece had a debt ratio of 169.1 percent in the second quarter. That is only surpassed by Japan and Zimbabwe. Belgium, Ireland, Italy, Portugal have debt ratios exceeding 100 percent.
Source: Niraj Shah (@economistniraj)
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All this should equate to fresh highs all around
If the Eurozone threatens the slip into a deflationary economy, it will become a printfest pretty quickly. Markets will rise in anticipation.
http://dareconomics.wordpress.com/2013/10/29/around-the-globe-10-29-2013/
"Deflation" is a myth. No society/currency has ever collapsed/died because it's purchasing power became too strong.
Please, go fuck yourself.
You obviously do not understand the meaning of deflation. It has nothing to do with FX rates. 1929 was a deflationary collapse.
You obviously don't have a lick of common sense. This is nothing like 1929. So I guess I should thank you for helping, that is exactly what I am saying. There are now 7+ billion people competing for a better standard of living, there is plenty of demand for real commodities and energy (calories), no fucking way such a deflationary collapse can occur now. Ignore FX dumbass, they are all just fiat anyway. Again, not the case in 1929.
You are not taking into account the massive expansion of credit/debt to drag future demand forward. With credit cards, car loans, house loans, payday advances, margin loans, student loans etc etc etc alot of things have already been bought for the next decade. When that unwinds, and it will, a massive deflationary collapse ensues. Take away the credit/debt and demand drops precipitously if not evaoprates over night.
Why do you think the central banks are printing money. The printing press is the jack and the economy is the car with the wheels having fallen off. The massive expansion of credit/debt has created an asymmetric demand for goods and services now and when that course runs out of steam prices have to go back to "normal", normal being the price discovered by a disciplined and moderate market with reasonable lending standards.
Now if all these financial institutions have invested billions if not trillions, levered 30, 40 50 , 60, 70, 80, 90, 100 times in markets that are based on inflated prices and prices start to collapse because cionsumers are tapped out on credit then those institutions are in a shit load of trouble. So I don't for a second undersstand your premise that a deflationary collapse can't occur.
Re: No society/currency has ever collapsed/died because it's purchasing power became too strong.
Well, societies usually collapse when the bottom 90% notices that the top 10% is screwing them.
So, the key thing is what causes the bottom 90% to notice and take action. Deflation MIGHT cause Honey BooBoo to get canceled.
Well they sure as hell won't revolt if their meager wages can actually buy more bread. That's for damn sure. of course, that's not what is really happening. This is not 1929, the problem with teaching math is people start to believe their "lying eyes".
Why would assume their nominal wages would remain constant?
If Honey BooBoo gets cancelled it will be like 9-11 times a thousand
Yep, the wrose things are, the better. Until it's suddenly not.
Gas holding at 2.93 along the Blue Ridge.
Not what Ben or Barry had in mind. Mr Market still has some surprises in store.
Maybe we should print some more money? It might event rickle down to the.... millionaires and not only the billionaires?
Greece is so fucked, but they are too scared to throw off their chains. They are trading their children's future for a few crumbs now.
It may take 20 more years of misery to convince them to do what they should have done years ago.
hang on, in Portugal we are "weeks away from ending our technical recession" according to our vice Prime Minister.
You have a Prime Minister for Vice.
I must visit soon;)
Bunga Bunga on, Dudes.
Re: It may take 20 more years of misery to convince them to do what they should have done years ago.
The reason financial scams are so popular is because the dumbasses can't remember back 20 or more years to know what they should have done. All a dumbass can do is keep repeating the same thing over and over. Hell, the dumbasses can't barely remember who screwed them in the last election, that's why we have two different color Teams.
The Greeks will undoubted blame "those people" for their problems. History shows the Dumbasses tend to kill each other while the smart-n-savvy people laugh from a distance.
The process of screwing the dumbasses is so simple, even a caveman could do it.
It's this day and age mentality...
nobody gives a fuck about anybody else...
and that...
is the reason why so many people live isolated for others.
Only your family also doesn't count because that's a small circle that doesn't count.
People don't unite anymore, feel like a group.
sure... everybody has 500 facebook friend...
but facebook also creates more isolation because people live for that stupid webpage... goto.. put picture... of life... on facebook.. must show people... I have life...
That's just sad.
Have you ever seen how young people go out these days?
When I went out when I was young, I knew 500 real people, I have 16 good friend, and 3 best friends.
People these days don't give a fuck anymore.
I can also see this at work. There's 258 people in the office. I say hello to about 50 of them and more than half of them is hypnothised to their screens. When you watch them, they don't speak to anybody all day...
At lunchtime, I went to the mess to eat a bit and there where 3 people...
everybody else stays behind there desk..
eatht heir sandwich...
surf the internet...
don't talk to other people...
that's sad. really really sad.
And when you do talk to somebody, they have nothing to say!
They truelly live empty lives!
My weekend are always so full! from here to there!
And most people... do nothing!
It's always: yeah... the kids... so bussy...
But they stop living!
I've been at my company for 7 years now.
I came to work in Antwerp because they where the best partiers in the country. REALLY!! THAT'S WHY I CAME TO WORK HERE!
And in the beginning it was uber fun at work!
We drank every 2 days. we organised events every week, went out to lunch with large groups of 10 to 12 people, we went for drinks every friday
Goodt imes!
And suddenly the crisis began and year after year the groups got smaller...
untill we stopped going out for lunches in groups...
People strated counting money at the tables...
the drinks went from weekly to monthly to... zero...
I go out to lunch with one more collegue these days.
And work?
Nobody helps each other anymore...
no more talks...
meetings are rare because they don't talk anymore. meetings where socialising events back in the day..
and we might have lost a lot of time talking about nothing and joking arround... but we did 10 times more work and where a lot more efficient.
nobody shares knowledge anymore. and people get dumbed down.
dumbed down... that's what I see when I look arround me... everywhere...
and nobody gives a fuck anymore.
And that... that's what I call a depression.
A depression is not a economical event. A depression is the state humans as a whole turn into when the future is bleak and hope is gone.
Re: A depression is the state humans as a whole turn into when the future is bleak and hope is gone.
Great rant. +1.
Debt is like a narcotic. It's great for awhile, but the hangover can be a bitch.
But, really, tho... What IF there had been no debt based society for the last 60+ years. If it wasn't for people killing themselves to pay interest on the debt used to buy bling to impress the neighbor we'd only need a 5 hour work week. How would the "big idea" people have gotten wealthy with people working 5 hours a week?
Damn right SD. I can relate a story from several months ago that really drove your point home. I was invited to attend a wedding rehersal party out of town. I went with a friend of the brother of the bride. She and the rest of the party were in their late 20's early 30's. They all arrived from out of town and most hadn't seen each other for years in some cases. In other words, this was basically a reunion of old friends and spouses. It was a party atmosphere for about 45 mins then I noticed that people started wandering away from groups to interact with their Iphones and such. I'd say about 30 mins later fully 60% of this group of close friends were busy interacting with their Iphones. I was just astounded. It went on like that the rest of the party. It was fun for me because I like to mingle at parties and don't even own an Iphone so never got hooked on texting my every thought.
Normalcy bias is a bitch. I'm not unaffected to be prfectly honest.
Poor Europe is in such deep shit... I guess Peru and the USA are next.
Re: I guess Peru and the USA are next
Naaa, gotta be Japan before Peru. When Peru goes, we're doomed.
and in Portugal, the Economy Minister has stated that there is an "Economic Recovery MIRACLE in Portugal". Yep, you read that correctly. A "MIRACLE" he says.
SYZ:
"As far as a rate cut is concerned, from what we understood from a recent meeting with ECB officials, it would rather be triggered by a worrying evolution in the inflation rate, i.e. inflation slowing down too much. Price stability is (as we know!) the primary mandate of the ECB and clearly overwhelms any other concerns in officials’ speeches. Given the own ECB definition of price stability (“inflation below 2%, close to 2%”), we understand that the inflation rate would have to fall below 1% for a period of time for the ECB to consider that it is failing to fulfil its mandate and needs to cut rate further. This is not a completely remote possibility as the preliminary release for September puts the inflation rate at 1.1%..."
Negative rates on the radar.
many sovereign bonds have been negative for quite some time. Yes, paying the government to take your money. This is what happens when confidence is lost and one must focus on the return of capital instead of the return on capital.
Its the apocolypse stupid.
yesterday I saw a 7 year auto loan commercial this morning my bank teller greeted me with a 40year home loan pitch!?
things are lookig up! not!
When it gets to 140 years, give me a ring.
Tis the season for vampires.
The allowable EU debt/GDP limit is 40%, which will always be strongly enforced.
Hey, as long as you can make the interest payments the amount of debt doesn't matter.
I think Europe need to buy some more military Bling. That would get their economies moving again.
moar military Bling makes you many enemies. and then you need even more military Bling in order to protect yourself from those new enemies. and then you have even moar enemies, and then you need even moar...
it's called history, of the kind called "do we really have to repeat that?"
and that is why you have to look at all forced political unions which have failed throughout history to understand that this EU project has already .. well ... failed.
? forced ? who? The Brits? The Latvians? The Croats?
Re: do we really have to repeat that?"
Why argue with success? Look at the number of people in the top 10% (and above) that got wealthy looting Big-MIC for the last 60+ years.
Dead dumbasses are just collateral damage.
you may flush when ready!!!