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Eurozone Deflation Ties Post-Lehman Record, Worse Than Expected
With every central bank scrambling to export deflation, and with the Saudis doing everything in their power to definancialize crude as an investment asset and destroy the US shale patch, it is probably no surprise that the ECB is utterly hopeless to prevent Europe from sliding into an all out deflationary contraction, which this morning Eurostat confirmed when it reported that in January, Euro Area deflation was "worse" (assuming it is worse when consumers pay less for goods and services, which it only is if they are sinking in debt) than the -0.5% expected reading, instead sliding from -0.2% in December to -0.6% in January, which also happens to be tied for the worst deflationary print in the Euroarea history, matching the number from July 2009 when the world was reeling in the global Great Financial Crisis depression.
In retrospect, 6 years of money printing hasn't done anything to improve the global economy.
The driver of this massive deflationary print: plunging energy prices, courtesy of the House of Saud:
But there's good news: rejoice, for even more deflation means even more Q€, which also means even more QE by everyone else as the race to export re-export and re-re-export deflation is now in its final stages. From the WSJ:
Last week, the ECB said it would purchase €60 billion ($68 billion) in public and private debt securities each month, mostly government bonds, starting in March and lasting until September 2016 in a bid to bring inflation closer to the bank’s 2% target.
Still, the longer consumer prices persist in negative territory, the more pressure the ECB will eventually come under to extend the purchase program. Officials have said it won’t end until they are confident that inflation is on track to reach their objective.
The program “will end only once we get a strong sense that inflation is converging toward 2%,” ECB executive board member Benoît Coeuré said in an Italian newspaper interview this week.
The latest drop in inflation was driven largely by falling energy prices, but also by declining prices for manufactured goods as businesses passed on some of the savings they have made on their energy bills. Food prices also fell, while prices of services rose more slowly than in recent months.
And while core inflation rose 0.6%, hardly a glowing achievement, the drop in crude prices - which as noted yesterday is now the biggest "Hamilton Oil Shock" in history - is about to have various downstream effects:
This trend will worry ECB policy makers, who want to prevent the fall in oil prices having “second-round effects” as other businesses cut their prices to gain market share and workers settle for lower pay rises. The ECB worries that households and businesses will grow accustomed to falling prices, and postpone some spending decisions in anticipation of a better deal later in the year, in turn leading to falls in output and further drops in prices.
Beyond the threat of a deflationary spiral, the decline in prices could, on the other hand, help boost consumer spending power in the near term, to the extent that falling prices are driven by lower energy costs.
The WSJ tries to spin this as benefiting household spending: "A bounce in consumer spending aided an acceleration in Spain’s economy during the fourth quarter, statistics institute INE said Friday. The eurozone’s fourth-largest economy grew 0.7% in the three months to December, compared with the previous quarter, INE said. That is equivalent to an annual pace of growth of 2%, INE added. In the third quarter, it had posted 0.5% growth from the earlier period."
Which is great, however considering the unprecedented levels of unemployment in Europe, any attempt to put a silver lining on this particular mushroom cloud will be not only short lived but, shortly, quite radioactive.
The punchline, and what the WSJ gets right:
If inflation falls deeper into negative territory and gets stuck there, it would raise even more doubts about whether eurozone debtor countries can recover without restructuring their debt that would spread more of the cost of cleaning up Europe’s crisis to creditor nations such as Germany.
Which is what we have been saying all along: Europe's financial problem is not with QE, not with stock markets, not with the corporate bond transmission channel, but with the €1-€2 trillion in secured bad loans on the books of bank balance sheets, which the ECB can not monetize (at least not yet). And fixing this will require a global, coordinated bailout backstopped by at least on sovereign, i.e., Germany. Something tells us if and when the time comes for Germany to finally provide the payback for all those years of benefits it reaped thanks to a currency weaker than the DEM, it will call it a day and pull the switch on the great monetary and political experiment.
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The depression is setting in.
The Bre-X helicopters stand ready for just such an occurrence.
Yup.....we're gonna drop some bankers.
I am starting to think Haus will be shitting a live chicken by the end of the year. I hope it is small and he has lube.
OT:
War has broken out in Israel vs Hezbollah
Obama (a la Kiev), sends 45 Neo Nazi political group to Israel to uproot Netanyahoo's Govt.
PREDICTION:....Payback coming to USSA....in spades
Dominos just waiting to fall. Move out the way yellen.
Funny how the EU, like the US BLS, strip out food and energy when they are rising, preferring the 'core' inflation rate. Yet when food and energy are dropping they leave it in.
Funny that....not funny ha ha, but funny skunk in the wood pile.
Time will tell.
I think all the CB's round the world have another round of QE in them before giving up the ghost.
If printing 60€B a month is good, 200B€ per month is even better.
I tend to agree. Hopefully, Janet pulls out the bazooka by June so we can find out if the chicken makes it to 2016.
That was one gigantic dead cat bounce.
the difference is RECORD STAWKS!
"Deflategate" spreads to Europe!
I wish someone would let the air out of Christine Lagarde's balls.
all "7" of em!
Heh heh.
"But there's good news: rejoice, for even more deflation means even more Q€, which also means even more QE by everyone else as the race to export re-export and re-re-export deflation is now in its final stages. " ROFL
"...the longer consumer prices persist in negative territory, the more pressure the ECB will eventually come under to extend the purchase program. "
Seems to be the trend in a nutshell. And the equities market will bet on that.
You know the majority in power are touting the unsustainable card w/ that bet. Of course anything not in their favor is "unsustainable" but I just thought I would remind you of them.
Careful blaming "House of Saud"...its about price whether American or Saudi..fundamanetal market priciples...Shale was never going to come cheap...
Have you seen those guy's border fence? That thing is sweeeeet.
http://media.carbonated.tv/130518_story__saudiborder.jpg
We'd have one too......but.......we po!
How many miles does that stretch? Seems like an awful lot of geography needs to be covered and guarded. A determined foe could drive right through that thing with a big oil tanker.
So they keep the oil and drop their asses back across the border.....no problem.
We could only be so lucky.
Send that picture to Sheriff Arpaio
p
Can't blame Saudi Arabia until you explain how they're causing decreases in the prices of the other commodities as well.
Dalla pegs are Gona come unpegged
isnt the much hyped and feared - DEFLATION!!1! duh duh duh!!!!!!!!!!
really just de - financialization? ( stripping the bullshit bankster fucking 1000:1 leverage ) ( fucking parasite tax on EVERYTHING )
thats a wonderful thing!
fuck banksters and their progeny!
"Which is what we have been saying all along: Europe's financial problem is not with QE, not with stock markets, not with the corporate bond transmission channel, but with the €1-€2 trillion in secured bad loans on the books of bank balance sheets, which the ECB can not monetize (at least not yet). "
which leads me to repeat what I have been saying all along: it's the usual problem of American analysts looking at typical european bank balance sheet and finding what in the US is the most toxic of all positions: business loans. which, in the eurozone, are normal and, as Tyler underlines... secured
which then has to be tied to the whole thing about how much in debt the typical eurozoner is... which is not much, and with collateral
so I will repeat my forecast for 2015: watch us having deflation and... "enjoying it"
-----
Country A has prices going up by 3% and a growth of 5%. Country B has prices going down by 1% and a growth of 1%
In which one would you feel more confortable? Depends. on your leverage, on your debt, on from where your income comes from
------
(btw, note the over 8% drop of costs of energy in this eurozone CPI. if this CPI would not include food and energy (as in the US one), would we still talk about deflation?)
lies, damn lies and CPI stats!
Ghordius,
Please ask Mutti to flash her tits at Putin and not her fists!
She should listen to Gorby !
I'm not sure if flashing her tits at Putin could not be construed as an act of war
but remember that it's still 28 governments being unanimously*... pissed off about Putin. lots of "tits flashing" needed
(*) how is the new Greek government going to vote at the next EU Council meeting?
Just buy the Russian stuff.
Heck even the Belosrussian stuff is looking good here.
lol, funny !
i hope the hell that last paragraph isn't zh suggesting that if only bank balance sheets were somehow fixed with MOAR Q€ that everything would be hunky dory because that is quite frankly absurd.
the way I understand that last paragraph is: A) Europe is doomed to deflation (cue in American atavic fears of deflation) and B) the ECB can't monetize that stuff (i.e. QE can't work), which leads to... doom, of course, of the kind that an economy with more personal leverage would have to fear. coupled with a hint that Germany will exit the EUR as soon as it's "not weak enough", an argument which imho is neither here nor there
moar of the same top down approach favors only banks and creditors and does nothing for the real economy. even an outright write-off that did favor sovereign debtors would do little to alleviate the structural problems that caused the morass in the first place. the system cannot fix imbalances which the system is designed to create in the first place.
buzzsaw 99, "moar of the same top down approach favors only banks and creditors and does nothing for the real economy "
you mean QE. fully agree. my answer: balanced budgets.... bitchez
Unfortunately there needs to be a refund or redemption first motherfucker.
The bankers and financiers made themselves quite wealthy while fucking everyone else. They still have access to free money (ZIRP).
Why can't scientists and engineers access hundreds of billons of free money?
my answer: a monentary system not based on debt issuance.
Cash and cash flow.
EXACTLY!
REPUDIATE THE DEBT!
DONT BUY IT.
DONT USE BANKS.
THEYRE ONLY USED TO LAUNDER MONEY NOW.
when is the god damned mother fucking us gdp numbers out? no one is god damned mother fucking talking about that. i want to go back to mother fucking sleep. WHEN THE FUCK IS IT?
Its being delayed due to a polar vortex.
https://www.youtube.com/watch?v=TVC6wbWsq3I
"And fixing this will require a global, coordinated bailout backstopped by at least on sovereign, i.e., Germany."
Indeed. Getting ever closer to "The Big Print"
So, it would appear that giving free money the bankers and financiers does not work. Okay, why are we doing MOAR?!?!?
the shootings will continue until morale improves.
Once you realise that QE is actually deflationary (at least as long as it removes assets from the shadow banking system), you see that "they" must keep their eyes on something else as they talk about inflation or deflation. Doesn't make any sense otherwise (and I doubt they are stupids)...
Yes, yes, safely removing their wealth from the system while selling their positions to the governments and selling 99% of the world into debt slavery.
I really don't worry, we are in a good position all around. for me and my business, the weather fucks with us more than anything.
The world has seen such fascism and "let the majority eat cake" monetary experiments before.
With all the FED's printing we are right back were we started from 7 years ago. The next 7 years will be HELL on earth.
The big money this year will be made trading currencies,not equities.