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The ECB Switches Into ‘Red Alert’ Mode
Now it has become increasingly obvious the European economy is stuck in an extremely dangerous deflationary spiral, ECB president Mario Draghi is getting sweaty hands. It has now been four months since he unveiled his new Bazooka plan of 1000 billion Euros of which approximately a quarter has already been deployed. Despite pumping several hundred billions in the financial system, the inflation rate keeps on going down and has now reached negative territory in the Eurozone in December.
This is an alarming fact and whilst the situation could be resolved there’s absolutely no time to waste as only a short period of deflation could be corrected. If the deflation persists for a longer period of time, consumers definitely will get aware of the consumer prices becoming cheaper and cheaper and thus refrain from buying anything more than they definitely need. This will decrease the amount of consumer spending causing the economy to contract even further, leading to stronger deflation. You don’t have to believe us, just ask Japan which is still trying to jump-start its economy after 20 years of deflation worries.
As the take-up of the total amount of money made available for the banks was much lower than anticipated, Super-Mario has to find other solutions to pump additional liquidity into the financial system of the Eurozone. According to several sources, the ECB has now several plans on the table to purchase half a trillion Euro worth of government bonds from countries with a sovereign rating of at least BBB-.
Most of the policy makers at the ECB seem to be backing this proposal but one can expect Germany and Austria to fight against the idea as both countries seem to be against any huge purchase of government bonds as that would reduce the incentive of the governments to tackle their budget problems. There are however pro’s and con’s to both parts of the problem. A low inflation rate is obviously bad news for the ECB and Eurozone countries which would like to see their sovereign debt being inflated away. However, a low inflation rate results in a low interest rate which makes it easier for countries to sell sovereign debt at a cheap rate.
Spain's 10Y government bond rate Source
So a low inflation rate might be bad for the economy as a whole, but governments aren’t really to alarmed about it. If we would for instance use Spain as an example, every 1% change in the sovereign debt yield results in a change of 12.5B EUR per year in annual interest payments. A 3% change thus results in the Spanish government saving 37.5B EUR in interest expenses. This might lead the ECB to (temporarily) let go of its inflation target of 2% and instate a ‘primary’ target of around 1% as that would reduce the risk of Eurozone-countries getting choked by a sudden rise of interest rates.
The next meeting of the board of the European Central Bank is planned for January 22nd, and it wouldn’t surprise us to see the first batch of measures being implemented right after that meeting.
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Hasn't worked in the Japan or the U.S. but these guys in Europe think they'll get it right with QE across the pond?Ya right.I can smell the big Goldman Sachs pressure cooker.Go ahead,everything will be OK in The Roach Motel,you just have to check-in with the rest of the morons.
I'm still waiting on the helicopters to unload all the cash I read about in here....to rescue us ..I'm even wearing a giant malcon X sweater when I go to FoodLion. so they can't miss me in the parking lot.. All I get for my troubles is a flat tire on the way home. That's all the deflation I see. Bread milk and eggs up over thirty percent..cat food too, which , truth be told, kinda smelled like Van Camps beef stew, especially the Pate. looks tasty too. So maybe we have a fallback position after all. Keep the faith!
Deflation is bad for governments and banksters.
Let her rip.
On Thursday, shocking news came out of Switzerland, when the Swiss National Bank abandoned its exchange rate peg against the euro. According to a Bloomberg article, "Not one of 22 economists surveyed by Bloomberg News between Jan. 9 and Jan. 14 expected the SNB to get rid of its cap in 2015."
But Brian Whitmer of Elliott Wave International not only saw it coming, he predicted it in his December European Financial Forecast newsletter.
http://www.globaldeflationnews.com/whitmer-of-elliott-wave-international...
22nd January 2015 is in fact 12 03 2014 (lunar calendar) - sacrifice.
01 07 2015 was 11 17 2014 - Tear down buikding
07 07 2005 was 06 02 2005 - Sacrifice
09 11 2001 was 07 24 2001 - Tear down building /sacrifice.
7 is the magic number.
For decades we knew that the only thing worse than inflation was talking about it.
And here we are now postponing purchases.
Only people with discretionary money postpone spending. Most of the poeple live hand to mouth. Moneyed people will postpone spending for two reasons; one to get a better deal and two out of fear that they will depleat their cash inventory. I suspect that most people will try to pay off debt with any extra money that they may incur due to deflation. The problem is that governments and banks (incestious whores for whom money is their very life's blood) cannot function in a deflationary economy. You cannot tax or exploit deflation.
Deflation for business is a two edge sword. Good if they can profit and bad if they cannot. For the tech sector you would think that it will probably be good, for energy probably very bad. Tech requires special education. Energy not so much. Sales in both will probably dry up. Japan for example is pure tech with a lot of very smart people and their deflationary economy hasn't helped them.
I think that long before any natural economic correction can effect society for the good, the preceding downside will give the politicians all the ammunition they need to start a war. Otherwise they go to jail or are lynched. People currently are not of a mind to go to war but if history is any guide, bet on war.
So, to encapsulate this article, the idea behind central banking is to make things more expensive for consumers because that is good for the economy.
You are nothing.
The State is everything.
And...?
Lower prices ? ....what nex free college ?.......oh wait
Is the point to nuke the euro or save it?
Interest rates have collapsed all across the EZ...what's the point?
That someone the ECB itself will go on a hiring spree?
"Negative rates.". Give me a break. Pay the Bank interest for depositing savings?
I think even Morgan /Stanley is better than that.
Print the money and give it to the people bitchez.
Man, I HATE lower prices! Nothing infuriates me more than lower costs for my business and being able to sell products at a lower price to attract new customers.
I go to bed every night terrified I will be able to put food on my family's table. What if my little girl needs a new pair of shoes and there is a two/fer/one sale. Aggghhh.....!!!!!!!
What does one expect ?
One expects a 1-2 t Qe program.
And a handshake in Greece that'll make Greece launch a thousand ships on Troy !
Look out for the sacrifice of Iphigenia that will raise the storm winds launching the 1000 ship financial armada on towards Troy.
Troy Ounces and Istanbul/Damascus bounces!
They're back buttering-up the Greeks again today:
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It looks like the EU is stuck having to bail out Greece again, now that Putin is offering Greece an alternative. EU gets weaker either way. If Greece defaults again and leaves, all the past money is finally recogognized as down the drain, but to make them stay, the EU must keep flushing more money down the drain.
What does one expect when EVERYTHING and I do mean EVERYTHING is Make Believe as it is?
This Financial World today is nothing but a Comedy Show as it is NOW!