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As It Turns Out Deflation Is Good After All
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:
The German government shares Mr. Weidmann’s view. It says public investment can’t solve the eurozone’s growth problem as structural reforms are needed. The International Monetary Fund and neighboring countries France and Italy have called on Germany to boost public investment. But Berlin has pledged only €10 billion ($12.5 billion) in additional public investment over three years starting in 2016, hoping this would spur private investment worth €50 billion.
Mr. Weidmann stressed that it is also wrong to believe central bank monetary policy would be able to solve the bloc’s economic problems.
“It is an illusion to believe that monetary policy means can raise economies’ growth potential permanently, or create lasting jobs,” Mr. Weidmann said. “In the end, this can only be achieved by structural reforms, because growth and employment occur in innovative companies and competitive products, and well-educated and highly motivated employees.”
Therein lies the rub: Europe is allergic to structural reforms, and as we have shown in the past, it blames its woeful fate on evil, evil "austerity" (somewhat paradoxical for a continent where record debt gets recorder with every passing quarter), when in reality what is causing the ongoing European depression is crime, corruption, cronyism and capital misallocation.
But none of that is news. What was news, and what was truly notable in Weidmann's statement is his open jab at the stupidity of Keynesian economics itself. To wit from Bloomberg: ECB Governing Council member Jens Weidmann says at event in Berlin that consumer prices in euro area “are strongly influenced by the energy prices, which are at the moment experiencing a positive supply shock.”
The punchline: "There’s a stimulant effect coming from the energy prices - it’s like a mini stimulus package."
But wait a minute, isn't deflation under Keynesian voodoonomics, the biggest bogeyman imaginable?
It turns out deflation is only bad when it impacts... the S&P 500. Otherwise deflation for such things as energy prices and other input costs is suddenly bullish? So, by that logic, Japan with its soaring energy costs as a result of its currency devastation must be smack in the middle of the biggest depression ever. Which, of course, it is, as we warned would happen in early 2013.
For now, however, we are more focused on the official transformation of the German Central Bank into the central bank of "Austrian" economics.
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Oil 50?
Defla 1%
Drop in oil prices seen weighing on inflation
latest:
http://tersee.com/#!q=oil&t=text
Who writes this stupid shit? A supply glut of oil and a subsequent drop in oil prices is NOT deflation. Deflation is a contraction in money supply. Falling prices as a RESULT of such contraction is a symptom of deflation. But isolated price drops caused by changes in supply/demand of a particular commodity don't mean deflation in any way. ZH never posted this kind if idiotic drivel before. Why this moron is writing asinine pseudo-economic bullshit instead of fighting with his betters at the nearest Black Friday big box, I do not know.
hold your horses, Tyler was quoting Bloomberg (the "news" service, not the megalomanic global fighter against nicotine and sugar consumption)
excellent article, oh, and yes, you are correct about the monetary definition of inflation and deflation, but there you have it, for Bloomberg it's all about stocks
and who knows, perhaps one day in the future ZH will note that the whole ECB has followed - all in all with some jawboning thrown in for spice - a mixture between "Austrian School" economics and a pragmatic stance, interwined. we'll see
well that is the central question : is Opec price slide indicative of slump in global economic demand?
As for contraction of MS its evident that all money just used for Casino games; aka outside of physical economy, is causing the MS for the real economy to shrink. What this means is the QE plays ONLY feed banksta scams on derivative bets.
Thus the speculation uses up according to some over 85% of new electronic money creation.
+1 nah, we all know that it's a pure price war. The Kingdom is flexing it's muscles and punching both Russia and the marginal oil producers in the face. The interesting part is the timing together with a new "bout" of Dollar Strenght, coupled with the humungus bets currently being put on the EURUSD to go further down
every time more credit is created, the speculative waves become bigger
So you are a proponent of the crude theory of money quantity (pun not intended), putting money velocity out of the equation. This in itself explains the theory's logical fallacy. Read this.
It's been years I've been waiting for laptop prices to inflate to $5,000 as opposed to $800 right now
If there is no inflation, I am not going to buy anything.
I'll keep my faith strong and wait for inflation
+1 lol. If only the bulk of the population could think critically, they would realize (as you've shown) that the crap being spewed forth by the elites about inflation is just that - crap.
No important turn dates coming.. sentiment analysis-but technicals are looking for a quick 2-4% drop. Most likely happen fast so the "bulls can just get it over with". May not see an important drop until January-but not safe to just buy.
http://www.sentimenttiming.com/free/
Riddle me this:
If Oil Price increase is not inflationary, how can Oil Price decrease be deflationary?
Credit bubble pops? = Bigger impact than oil price rising.
Thank you for your sanity.
Wonder how chats around the water cooler at the monthly BIS directors meeting go with him and Yellen..
For those involved... It has a good ending!
Colossal Debt Levels Scream Deflationary Depression
http://investmentwatchblog.com/colossal-debt-levels-scream-deflationary-depression/So, The Bernake's life was a waste after all?
Anybody see deflation when they bought their Thanksgiving meal yesterday?!!!....
You'd never know that WTI impacted the price of all those ingredients getting to your dinner table!
Bankers will get suicided if they hear this guy....
Seems then that unlike JPM/GS & Friends who own/operate the FEDRES the DBB aren't owned by Deutsche Bank!
Fuck them they're complicit in this giant circle jerk.
With the price of oil disintegrating, there must be derivatives exploding worldwide.
I hold Gold bitchez....therefore I pick up pennies
So, when your gold turns into pennies, you pick them up?
You may classify me as a martyr and I'm fine with that. Just so happens I have an old side by side 12 ga. that was the first shotgun I shot. While its value is only a few hundred and it may not look, feel or cycle like a Benelli, it can knock down a bird any day of the week. Not letting it go is tradition, pleasure, wise, memorable, cool, prudent and economical. Gold and old guns are sweet, to each his own. Neither will bankrupt me, only debt does that...got Fiat?
Gold Bitchez....I pick up pennies
https://en.m.wikipedia.org/wiki/Reification_(fallacy)
I think a great ZH contest would be to ask people to describe, in a sentence, or tweet-length expression, why neo-Keynesian thinking is so flawed, dangerous, harmful, etc.
I wouldn't quite know where to begin, but also have to admit I haven't even read Keynes, and my understanding is limited to what well may be distortions by Krugman and other Ivy academics whom quite literally, I think would tank any business they ran.
In a simple sense, Krugman et al. Espouse statist, progressive politics while analyzing economics from what amounts to the standpoint of a debt creating matrix, cherry picking stats and metrics selected for their very obfuscation of the fiscal or financial health of the middle class or small business.
Economics is just philosophy dressed up in a halloween costume. In other words, it looks scarier than it really is.
Austrians are philosophical elitists. They recognize that having a limited supply of money benefits their one percent dreams of total domination over the serfs. Gold answers well to the creation of a limited supply of money, IF gold is money. Gold becomes money when humans say it does, and not a moment sooner. Austrians are like the KKK in that at least they are straightforward with their evil, and you know where they are coming from. The exception are those Austrians who actually believe gold is intrinsically money. These deluded fools are gold-olaters and are perpetually taken to the cleaners in the gold markets. This does not bother them, since they view their financial destruction as a form of martyrdom.
Keynesians are the philosophical proletariat. They are more dangerous that Austrians because, while they recognize that gold only becomes money when we decide it does, and that we can take away gold's money status at will, they suffer from the opposite delusion, which is that once they make paper, (or debt) money, they actually think it exists. In other words, Keynesians believe their own bullshit, and this makes them much more dangerous than Austrians. As the proletariat, Keynesians think everyone should have money, not just the few. So they create money and give a ittle bit of it to everyone. The masses feel better, even though they are just as oppressed as ever.
There are some among the elite who recognize that wealth is nothing more than the control of resources, and ultimately control boils down to the ability to use lethal force against other people. These people don't waste time with schools of economic theory. They study esoteric ways of projecting their will upon others.
lol, that has to be the best summary of political reality I have seen, at this very elitist, aka false nosed and basically neo-con minded --behind the Austrian philosophising-- blogsite.
But, it also plays to the red necked populist crowd more and more as the postings show.
Well, c'est la vie.
Thank you for ringing aloud reality's bell ---and this includes your summary of Keynesian proletarian fronting and elitist, statist grunting behind the curtain world. (We have a lot of that in France).
Cheers!
damn you for exposing me as fundamentally elitist in my philosophy!
in defense of what I understood about the Austrian School: it just says that money is created spontanuosly, by human (market) action. it does not mandate gold for that
If I remember correctly, it was Carl Menger that postulated this, as part of the Marginal Revolution of Economics. in short, people adopt the best suited commodity as numeraire. Meaning what they calculate with, and price accordingly everything else with. Some things are just better suited for that then others, that's all
but yes, some of the alleged "Austrian School" proponents are simply oligarchic "libertarians" that dream to become "sovereign (Robber) Barons". romantic, I'd say
who controls people... controls resources, too. it's all a question of political will, yes
Please cite where Austrians believe in a limited money supply. Austrians point out the dangers associated with flexible money supplies whose quantities exceed the value of production and services and money supplies which are NOT money- by definition. A Federal Reserve note is just that- a debt note, which is the anti-thesis of money.
Using gold or other commodity based money substitutes merely keeps the State from creating leverage opportunities for those with the ability to take advantage, as well as restrict the ability of the State to consume more wealth than its' citizens can pay.
While gold meets the definition economists assign to money, it is only money if people wish to trade in it. The Constitution defines the dollar as silver and gold is to be valued in reference to it.
The real danger of Keynes and Austrian economics is their ability to create two sides to a debate posited in environments which do not exist. It gives the Elites the ability to pick and choose policy to benefit themselves. This is why academics exist, as rhetorical constructs to confuse and placate the uneducated.
Economics has a history that is as ancient as trade. To focus on two schools of thought and draw distinctions is intellectual cherry picking. For your information, Austrian economics is most famous for its' treatment of capital, time value in determining interest rates and the advantages of a free market for price discovery.
excellent summary. yes, the Austrian School explains time preferences, subsequent saving and investing, and so capital in a more satisfactory way then any other branch of economics. particularly well invested versus malinvestments
Hope you're having a great start to the holiday season Ghordius. Thanks.
fwiw, the way I look at it, it's not so much about gold versus fiat as who/what has the issuing power. A private cartel of banks issuing gold backed tokens of value - currency - is worse than the government issuing fiat.
Still, everything being equal, the government issuing currency backed by gold and/or silver would seem to be better than either of those options.
fractional reserve currency creation will inevitably shift wealth from productive labor to capital - that's simply how interest works. But it is far worse when banks can create it out of thin air, ab inition, lend it at low rates to banks, which can then turn around and buy GI debt at a higher rate.
But the basic problem is the outright fraud and theft involved in paying back in blood, sweat, and tears, what a small cabal of bankers created from nothing.
Neo-Keynesian thinking is harmful because it advocates the creation of large amounts of money out of thin air, and that money always goes directly to a handful of bankers, who use it to buy up everything that generates wealth or power, and that, sooner or later, makes everyone else a peasant.
ECB is central bank of Keynesian thinking and Weidmann is saying the German Central Bank (part of ECB) will be in Austrian mode !
Hahaha, the EU has a two headed jack-ass as CB.
Now that has to be hilarious and I hope Juncker is laffing as well as he wants 300 billion investment to kick start pronto infrastructure projects.
Tower of Babel now moved to Brussels ? (Granted Baghdad is now hearing other noises more sinister in its suburbs).
if you read Marine Le Pen's last public letter, both EU and the ECB are "ultraliberal". Google translated this in the recent ZH article as "libertarian". I'd say "Austrian School", but that's me
Juncker is now doing the equivalent of Draghi, if you ask me. Keep that beast that is the transatlantic betting casino appeased with... words
sure, the EU is coughing up 28 billion... of money it would anyway have spent, to pave the way for private investments... that would anyway have been done
of course, this dosis of "dirigisme" might have some positive side-effects, but in my personal perspective it's all Big Biz - I would have preferred some serious moves to cut some red tape that - as this excellent article points out - nobody wants to cut
Ghordius, you must be a wizard if you can decipher what the EU and the ECB have in mind.
For sure Big Biz pulls the strings, but what they say comes out in rings of smoke, like an Apache tribe who doesn't know if it wants to retreat or to attack.
No wonder Hollande spends his time kissing his new gF in plain view of the Media at the Elysee, all the while swearing that she never comes to those hallowed grounds.
Media teasing and "little nothings" keeps the world going round n round for these clowns.
At least Miley Cyrus is young; if just as "wise" in her media savvy.
nah, no wizardry involved, just a mixture of skepticism and cynicism. we are attacking, my friend! except that we are retreating, but don't tell this to the enemy
Time for a new suit demanding the fed divulge its owners on a theory of forced contract, or simply to end it... on 13th amendment grounds...
Oil has been manipulated to impose max pain on Russia. Period. It has absafuckinglutely nothing to do with supply and demand. When its geopolitical utility has been exhausted, we will enjoy $120 oil once again. Die assholes who would twist the current operation to have any lasting benefit to the sheeple.
Bravo Mr. Weidmann!
"If there is no inflation, I am not going to buy anything."
Now your thinking like a goofball Keynesian.
Inflation/deflation as it derives from the artifial manipulation of money supply is absolutely immoral and destructive, not to mention outright theft as it deprives men of their labor.
Deflation as it results from increase in efficiency is a whole together different affair. I suppose one could make a case for the destructive influence idleness can have on a society. But it is not the increase in wealth resulting from a man's labor that results in such deleterious idleness, but rather the transfer of said labor to a class of human slugs via cheep money, that allows for decadence and the debasement of human dignity, all the other fallout we are all so familiar with.
It is a sad fact, and difficult for some of us to understand, but the bulk of humanity requires leadership and guidance from human hands... as opposed to the devine guidance we all require. It is just our misfortune to live at a time when such leadership is utterly self serving and demonic.
See you all on the other side of the reset.
and let's take the deflation argument further. deflation is a sign that prices are correcting from the central bankster manipulation of money. deflation must occur to correct the structural price pathologies given by central banksters. anyone who frets and fears about deflation is a bankster. abolishing the fed would eliminate all of these gyrations in prices and interest.
Some people actually look good in those banker glasses. He might try a brown suit, too. :-)
Weidmann's been pretty consistently against QE, stimulus, Keynesian rationalization. Pretty much the only remotely sensible European banker right now. Schaeuble not as much but they're all better than Draghi.
As Black Friday Proves, the people like deflation.... They spend when prices are reasonable.
All governments are allergic to structural reform. For the US, there will certainly be more robbery, hedge in hard assets. The country is close to restructure, by 2020 is my best guess.
why do i keep seeing the word "Guillotine" in everyone's posts?