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"Turning Point In European Monetary Policy" - Is Germany About To Embrace Inflation?

Tyler Durden's picture


When we presented the latest chart of the Bundesbank's record TARGET2 imbalance last night we had one simple message: we hope Germany is prepared for the rout its central bank will soon experience once the Eurozone's members start dropping like flies. Today it appears that Germany has decided to go with the flow, and in what Spiegel classifies as a "turning point in monetary policy" notes that Germany, in an abrupt shift to its Weimar-impacted history, is getting ready to embrace inflation. What this likely means is that the ECB is about to set off on its most aggressive monetization experiment ever, which also explains why all of Europe is trading diggy limit up this morning: it is not on the latest batch of horrible news - it is on the return of speculation that the ECB is, with the Bundesbank's blessing, baaaack.

Translated from Spiegel:

The inflation is still fear of a German subject. After all, the country experienced from 1914 to 1923 one of the most radical currency devaluations, which came in a large industrial nation ever. A rise in consumer prices is so politically sensitive still. Now, the German central bank still dares approach the subject - albeit with extreme caution.


The Bundesbank estimates that Germany will soon have an inflation rate that is above the average in the European Economic and Monetary Union. So it pushed Jens Ulbrich, who heads the economics department of the Bundesbank, at a hearing in the Finance Committee of the Bundestag, the Dow Jones news agency reported on Wednesday.


In Germany, inflation is currently lower than the average for the euro-zone. Economists expect but also that it increases soon. In collective bargaining were last achieved significantly higher wage settlements, even Germany's finance minister, Wolfgang Schäuble (CDU) warned at the weekend to significant wage increases. Does not increase productivity at the same rate, reduces the price competitiveness of Germany. Also, this would reduce the imbalances in Europe.

Naturally, since central planners are in charge, they posit that this shift to nearly one century of monetary prudence can be moderate, and will take place calmly and peacefully:

he increase would take place only from very low to a moderate level. Could be meant a transient level of about 2.5 to 2.6 percent. And yet: The announcement by the Bundesbank pursued in the scientific world with great interest. The British "Financial Times" evaluates it as a signal that the Bundesbank loosened its rigid inflation policy. The economist Carsten Brzeski of the Dutch bank ING sees it as a "major breakthrough". The Bundesbank admit the first time that Germany must take responsibility for a new balance in the euro area, he said the "Financial Times Germany" ("FTD").


Consumer prices are expected to rise for a simple reason, according to Ulbrich: Europe's politicians are increasingly trying to reduce so-called current account imbalances. With this in the broadest sense, the international flow of goods are intended. Countries in southern Europe have more imported than exported for years, while wages increased in these countries. Funding has been the high cost with new loans, so indebted to the Southern European countries more and more.

The irony is that Germany is funding the current account deficits of the rest of Europe. The fact that inflation in Germany has been stable has allowed this. Start adding inflation and things will get out of hand quickly.

But that is not the real reason for the about face in German monetary policy: what it really is getting at, is to telegraph that the Bundesbank is now most likely open to far more aggressive intervention by the ECB, whose LTRO has now failed miserably, and nothing short of outright monetization (in the primary market: the secondary market purchase program: the SMP is also a failure) will prevent the collapse of the union, especially once Greece leaves.

In other words, the stage for the world's next epic monetization episode is now being set, with a hapless Germany, dragged kicking and screaming into. And why not: just ask any central planner - "it is for their own good."


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Thu, 05/10/2012 - 09:07 | 2412761 GetZeeGold
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Time to make the $2 donuts......time to buy zee gold.


Thu, 05/10/2012 - 09:21 | 2412800 HarryM
HarryM's picture

When someone has your balls in a vice and tightening the screws, you vill print, and print they will - short term rally

Thu, 05/10/2012 - 09:29 | 2412848 maxmad
maxmad's picture

WEIMAR!  Do they ever learn?



Thu, 05/10/2012 - 09:34 | 2412869 Badabing
Badabing's picture

Euro dollar 1 to 1

Thu, 05/10/2012 - 09:57 | 2412945 I am more equal...
I am more equal than others's picture

I'm confused by the consequences, so they inflate the fiat but in real terms everyone is a loser. 

Who wins in this game of stupidity? 

Return on capital negative. 

Real wages negative. 

Destroy the poor. 

Create social unrest. 

Destroy the middle class. 

Destroy the economy. 

Thu, 05/10/2012 - 10:05 | 2412972 Badabing
Badabing's picture

Who gets to spend the new printed money wins AKA the .1precent

Thu, 05/10/2012 - 10:19 | 2413023 HarryM
HarryM's picture

Assuming everyone inflates at the same rate , we're standing still

They print , we print , Euro stays @ 1.3

Thu, 05/10/2012 - 11:28 | 2413090 The Big Ching-aso
The Big Ching-aso's picture



The Germans are about to turn into Weimaranians and their country into dog shit. 

Thu, 05/10/2012 - 15:39 | 2414360 JailBank
JailBank's picture

Not for long. Ben can't let there be parity. FED will weaken the dollar.

Thu, 05/10/2012 - 09:08 | 2412766 DormRoom
DormRoom's picture

great. more monetization so baby boomers can keep the status quo, and youths get more f*cked, since we will have to carry the debt burden, like we are doing for 3 Greenspan bubbles.

Thu, 05/10/2012 - 09:11 | 2412780 GetZeeGold
GetZeeGold's picture



It's either that or stick the gun to our heads....what option did you think they were going to take?


Thu, 05/10/2012 - 09:42 | 2412825 rwe2late
rwe2late's picture

 Great. more monetization so a wealthy elite .1%, who are protected, defended, and revered by police and military youth, can f*ck over the rest of us, at home and overseas.

Thu, 05/10/2012 - 09:06 | 2412768 Elwood P Suggins
Elwood P Suggins's picture

There was never the slightest doubt this would happen eventually.  Come what may Merkle was not going to put herself/Germany in the position of being blamed for the collapse of the Euro.

Thu, 05/10/2012 - 09:59 | 2412947 ATM
ATM's picture

The end game is for the Germans to control Europe and the debasement of the Euro will ultimately give the Germans that total control they have always sought. The havok that will come will drive all of Europe to federalize their government and centralize the power.

Guess who ends up winning?

Thu, 05/10/2012 - 12:08 | 2413491 Treason Season
Treason Season's picture

We don't have to guess mein freund. The bankster cabal that has run the U.S. and Germany for the last century will win. Where've you been?

Thu, 05/10/2012 - 09:09 | 2412774 GMadScientist
GMadScientist's picture

"All in"


Thu, 05/10/2012 - 09:20 | 2412808 XitSam
XitSam's picture

So around 80 to 90 years is the memory span of a hyperinflation. Good to know.

Thu, 05/10/2012 - 09:24 | 2412824 Vince Clortho
Vince Clortho's picture

The kids are tired of hearing the grandparents stories and want to experience hyperinflation first hand.

Thu, 05/10/2012 - 10:24 | 2413034 mendigo
mendigo's picture

A bit of printing does not necessarily result in hyper-inflation. Our goverment has been printing since its founding which for example is why a loaf of bread is hitting about $4 rather than the old price of about $.05. Hyper-inflation would be caused by a loss in faith in the currency - could happen any time.

Thu, 05/10/2012 - 09:47 | 2412905 GMadScientist
GMadScientist's picture

You were being sarcastic, but that is about the "This Time is Different" for the actual historical record.

Capitalism falls on its face shockingly often.

Thu, 05/10/2012 - 09:59 | 2412949 ATM
ATM's picture

Not capitalism but central planning. 

Thu, 05/10/2012 - 10:06 | 2412968 Vagabond
Vagabond's picture

I don't understand how you can blame capitalism when it is the debt that has caused our problems.  Blame the Congress for creating the Fed, and blame the Fed for creating a debt based currency, and for institutionalizing fractional reserve banking.  If we collectively blame the wrong culprits we'll end up building another flawed system from the ashes of this ponzi.

Thu, 05/10/2012 - 09:43 | 2412889 Stackers
Stackers's picture

You think it's safe going all in on a pair of 3's ???

Thu, 05/10/2012 - 09:48 | 2412909 GMadScientist
GMadScientist's picture

Of the same suit no less. ;)


Thu, 05/10/2012 - 09:09 | 2412777 Quintus
Quintus's picture

Well, commodities and precious metals have been subjected to a controlled demolition over the past few weeks in preparation for something, that seems clear.

Maybe it's a new inflationary blowout in Europe, maybe it's the impending Debt Ceiling fiasco in the US, but for certain, something nasty is coming around the corner that requires prices to be dramatically lowered beforehand.

Thu, 05/10/2012 - 09:11 | 2412784 GetZeeGold
GetZeeGold's picture



Seemed pretty clear to me.


Thu, 05/10/2012 - 09:35 | 2412874 gmrpeabody
gmrpeabody's picture

We tend to forget, what with all the selling of gold and PM miner stocks, that somebody has to be the buyer. I think I know who it is.

Thu, 05/10/2012 - 10:04 | 2412886 Quintus
Quintus's picture

The thing is that actual gold being bought and sold comprises only a few percent of the dysfunctional 'Gold' market.  The sellers are selling something completely different from what the buyers are buying.

You can easily manipulate the price up or down $50 without ever owning, buying or selling any metal.  

As long as you ensure that the regulators are looking the other way and continue sitting on their 4+ year long metals market investigation indefinitely.


Thu, 05/10/2012 - 09:17 | 2412806 ZeroIQ
ZeroIQ's picture

I can't understand how the market can be rigged that way? Is it really possible with the HFT:s? I suppose they could just do circular trades to eachother to get the prices down, so you're probably right.

Thu, 05/10/2012 - 09:40 | 2412882 gmrpeabody
Thu, 05/10/2012 - 14:27 | 2414062 ZeroIQ
ZeroIQ's picture

Thank you! :)

Thu, 05/10/2012 - 09:44 | 2412892 Zero Debt
Zero Debt's picture

It has been awfully quiet on the summit front as well. The elite has retreated and is plotting their next move. Global QE?

Thu, 05/10/2012 - 10:01 | 2412958 ATM
ATM's picture

It's only a rush to liquidity because of margin calls and capital requirements. People are selling the liquid stuff (paper gold/silver) to fund their bets on other things that are dropping.

Also money is rushing into the dollar from the euro. 

No big deal. Just a easily predicted buying opportunity that will not last.

Thu, 05/10/2012 - 10:12 | 2412988 xela2200
xela2200's picture

Agreed. It all feels as prep work for something big.

Prep work:

- Oil down after blaming speculators

- PM down

- No more Iran tension for now (bs talks).

- No more QE talk from FED

- Shanghai started trading silver contract (arbitrage). Caveat --> Chinese permission to start SLV etf which makes me feel they want to play same game with hypothication.

- Talking heads are turning pessimistic. Even LIESman has starting to say unemployment numbers are looking bad.

- Gold bashing. I have never seen so many trolls in this website.

- Accumulation/distribution on PM going parabolic. Demand seems very strong. How many solar panels does it take to replace a nuclear power plant?

- JPM seems to be quietly exiting their shorts. This week's COT should be interesting. More interesting will be if they start unloading on the next move up. Gut feeling this is a huge flush.

- Europe and Japan are printing or on hold until FED starts, and the latter are only holding because the US has a trade deficit which is already affecting GDP.

- No talk about National Debt Limit increase coming soon.

- Political pressure to print. Yes print. Politicians get elected because they offer stuff and not because they offer financial responsability that is the lesson from Europe. Obama is sure taking notes.



Thu, 05/10/2012 - 10:26 | 2413051 Bicycle Repairman
Bicycle Repairman's picture

Big thing = US election?

Thu, 05/10/2012 - 09:15 | 2412793 ZeroIQ
ZeroIQ's picture

Just what could be expected. There were only two viable options to solve the crisis. One was to let capitalism have its way and ass rape the banks. This was not politically possible of course, so the other solution was inflation. Nice going jackasses! Get ready to get sideswept by the next nazi wave over europe.

Thu, 05/10/2012 - 09:29 | 2412842 Vince Clortho
Vince Clortho's picture

The first wave will likely be socialism.  That is the one favored by many of the politicos (already in the works) and the central planners.  Neo-Nazi may backlash in response to that.

Thu, 05/10/2012 - 09:14 | 2412794 DeadFred
DeadFred's picture

My BS alarm is going off full volume. Always remember when the magician is waving the shiny bauble in front of your eyes his other hand is picking your pocket. This is just the new version of the China bailout stories from last year.

Thu, 05/10/2012 - 09:15 | 2412795 tocointhephrase
tocointhephrase's picture

Free toilet paper!

Thu, 05/10/2012 - 09:16 | 2412797 PivotalTrades
PivotalTrades's picture

Is it time to short Bund?

Thu, 05/10/2012 - 09:17 | 2412804 firstdivision
firstdivision's picture

So what they are saying is that not only is the banking system in jeopardy in the EU, but Germany has no organic growth and will have to fake growth through monetary loosening.  Way to follow in our footsteps, Germany, but you’re still a three decades behind us.  Get with the program so that we can have super-global-inflation.  It’ll be awesome watching the printing press get out of control from CB to CB.

Thu, 05/10/2012 - 09:20 | 2412811 scatterbrains
scatterbrains's picture

Will ECB printing = U.S. dollar strength and is this why GS is inverse bullish on gold ?

Thu, 05/10/2012 - 09:23 | 2412820 phyregold
phyregold's picture

GS always screw their clients, so basically they USD will rise as a result, gold will lower, GS tells all it's clients to buy at the same time it shorts.

Thu, 05/10/2012 - 09:21 | 2412813 malikai
malikai's picture

The CBO is dispatching an emergency response team to Germany which will teach those silly people how to appropriately report inflation.

Thu, 05/10/2012 - 09:22 | 2412815 RoadKill
RoadKill's picture

Zee uberbachen did not get ze message on Sunday...  Time to shout louder.

At this point its pretty clear that only political unrest will cause Europe's Belgian masters to change course.

Thu, 05/10/2012 - 09:21 | 2412817 Village Smithy
Village Smithy's picture

Whomever was buying the gold miners yesterday knew what was up.

Thu, 05/10/2012 - 09:42 | 2412890 GetZeeGold
GetZeeGold's picture



Like magic really.


Thu, 05/10/2012 - 09:22 | 2412823 youngman
youngman's picture

Germany is an exporter...they are selling alot of cars to Chinese....BUT they also export to the rest of the EU...I bet there are some very angry EU member and they do not like the Germans anymore.....they can buy elsewhere I bet...

I think Germany should leave the EU first...

Thu, 05/10/2012 - 09:23 | 2412827 machineh
machineh's picture

Germany accidently going inflationary as an unforeseen consequence of the euro crack-up would be no more surprising than the Federal Reserve, after 15 years of publishing papers about 'how to avoid becoming Japan,' finding itself with a multi-trillion dollar balance sheet while its policy rate remains stuck at zero and the economy treads water.

On a long enough timeline, fiat currency makes a fool of every central planner. Including German ones.

Thu, 05/10/2012 - 09:25 | 2412830 phyregold
phyregold's picture

Lets start the petition for Germany to leave the ECB & EU first.

Thu, 05/10/2012 - 09:28 | 2412846 Sudden Debt
Sudden Debt's picture

If this doesn't justify a all out downside manipulation of gold and silver I don't know!



Thu, 05/10/2012 - 09:50 | 2412912 ParaZite
ParaZite's picture

Hey if I can pick up a 20 dollar US GOLD coin, for 20 bucks... and a 1 oz piece of Silver for 1 US Dollar... I'll do that all day long. 

Thu, 05/10/2012 - 09:29 | 2412849 Urban Roman
Urban Roman's picture

They'll be OK as long as they have Charlie Munger sewn into the hem of their jacket.

Thu, 05/10/2012 - 09:29 | 2412854 Poetic injustice
Poetic injustice's picture

If they do that, it's kaput...

and then most likely Germany will turn into oppressive tax state.

Thu, 05/10/2012 - 09:46 | 2412899 Zero Debt
Zero Debt's picture

The third time is the charm.

Thu, 05/10/2012 - 09:33 | 2412856 magpie
magpie's picture

Even if this were somehow a "smart" move, what makes them think that inflation will a)be lower in the periphery b) have any beneficial effect there if it isn't in the first place.

And for God's sake, even mainstream media is already reporting on gasoline thefts from depots and parked vehicles.

Thu, 05/10/2012 - 10:01 | 2412957 sockratte
sockratte's picture

maybe due to common fiscal policy? i dont see the ECB loosening money due to the BuBa allowing higher inflation. in fact, this will help stabilizing the euro-system itself, and thus less probable for the ecb starting further ltros. of course, this is only necessary, because of there-is-no-alternative-merkel. but there is an alternative. and that would allow BuBa not to set up higher inflation.

Thu, 05/10/2012 - 10:12 | 2412994 magpie
magpie's picture

Doesn't it make total collapse via higher taxation and inflation inevitable ? And i don't see what any common fiscal policy changes here; the money is printed to be spent in the periphery, period.

Thu, 05/10/2012 - 10:41 | 2413021 sockratte
sockratte's picture

it is planned to be a temporary measure, of course still with risks and has to be observed. but this is mainly meant to release pressure on the periphery, so that austerity can have effect... otherwise, it won't, as you can see in greece and spain. so, one could also say, BuBa comes a little late, but comes. ;-)


edit: once the euro-system is stabilized, inflation can be brought back, and then for the whole euro area

Thu, 05/10/2012 - 09:40 | 2412884 yogibear
yogibear's picture

The rats are trapped. It's WEIMAR time!

Thu, 05/10/2012 - 09:47 | 2412904 ParaZite
ParaZite's picture

So, the prices of Gold and Silver have dropped. Inflation is getting ready to hit... is it just me, or does this sound like a good time to pick up solid assets for worthless fiat?

Thu, 05/10/2012 - 09:57 | 2412941 ejhickey
ejhickey's picture

People all over the world, join hands Start a love inflation train, love inflaion train People all over the world, join hands Join a love inflation train, love nflation train The next stop that we make will be England Tell all the folks in Russia and China too Don't you know that it's time to get on board And let this train keep on riding, riding on through
My apologies to the O'Jays but it looks like the 70's are back

Thu, 05/10/2012 - 10:02 | 2412961 HastyP
HastyP's picture

" I cannot write so I will print"  -- Ben Bernake" 2012

Thu, 05/10/2012 - 10:07 | 2412983 mendigo
mendigo's picture

1) Let EU collapse and look for work or
2) Print money to pay debts.
These are truly great minds at work.

There will be no moment of truth.
When situation becomes unpleasant they will have provisions set aside.
Don't cry for me Argentina...

Thu, 05/10/2012 - 10:57 | 2413147 Sandmann
Sandmann's picture

This article is lightweight and nothing new. Germany had a target inflation <2% which is a joke because food and energy costs are way ahead of this as are rents and petrol and health insurance. It is gibberish. The ECB cannot raise interest rates so the Bundesbank has to make out it accepts temporarily higher inflation simply because it cannot do anything about it. If fuel price inflation and food price inflation came DOWN to 4% people would be ecstatic.

I wonder if they can get another 2 or 3 Angels to dance on the Pin-head

Thu, 05/10/2012 - 11:52 | 2413399 supermaxedout
supermaxedout's picture

Germany is clearly preparing itself for the strong inflation which is soon coming to this theater. Or all theaters around the world.

A few weeks ago Government employees got a  appx. 5% pay hike. Metallworkers  get about the same. Minister Schaeuble tells the public:  Its time now that the employees do get a mayor pay hike now in this year. 5 to 6% is just fine.

Its fits all well. Exports reached a new high last month but also imports. Order books are full. Till now germany is booming. Thanks to the markets in China, Russia and Eastern Europe Germany is booming that is fact. Unemployment is lowest since more than 20 years. Tax revenues are strongly rising. Government is investing. Next years tax estimate is significantly higher again (despite the fact that this year looks already like a new record). Main reasons the increased salaries  (income tax) and the general higher prices which increase directly the amount of the Value Added Tax (VAT).

The announced and forward pushed pay hikes for the employees is now top priority of Frau Merkel, so that the coming inflation is not hitting the normal people to hard. Fortunately the German state and the business sector is able to pay more and this is what they are doing now in preparation for the upcoming inflation.

You know what. My respect for Frau Merkel is ever growing. She should be a candidate for the next Nobel Price for Economy. Go Angela Dragonkiller, go, go.

Or no,  better not !!!   Obama gave such a bad example. He received the Peace prize but as a result he is the first President permanent at war all around the world but all undeclared wars.  Not real wars, or ? He should have receive the War Prize instead  which would have fitted well also to the Dynamite Nobel AG which is still a leading producer of high tech explosive material.   Another leading candidate for the War Prize would be Cameron and Sarkozy. Ok,  Sarko is now not anymore in the official competition. He returned to his old job at the CIA. But who knows really whats next on his to-do list. There is still unfinished business for him in Syria.




Thu, 05/10/2012 - 13:45 | 2413869 Watson
Watson's picture

Probably I misunderstand, but what I thought the Bundesbank said was '...we are now prepared to tolerate Germany having an inflation rate higher than the average in the Eurozone'.

Which I thought was pretty clever, because it _appears_ to be a weakening statement (which the politicians will want), but in actual fact, bearing in mind the large-scale EUR debt destruction that seems likely in the near future, it is nothing of the sort.

The debt destruction is _de_flationary, so with average inflation -ve, the Bundesbank can keep its word (and its mandate) with German inflation at zero.

As I said, probably I misunderstand.

But I would point out that the Bundesbank has a long tradition of being far cleverer than German politicians...

And I don't see the Bundesbank giving up on its anti-inflationary traditions for Angela Merkel...

Thu, 05/10/2012 - 14:12 | 2413995 lolmao500
lolmao500's picture

The faster Germany implodes, the faster the EU implodes. So YES PLEASE.

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