Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Trichet Says No Deflation or Economic Stagnation in Europe

Economics / Deflation Jun 24, 2010 - 03:17 PM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleA sure sign that something is either on the way if not already happening is denial by a central banker of the risks. With that idea in place, this headline speaks for itself: ECB's Trichet says austerity plans don't risk stagnation


"As regards the economy, the idea that austerity measures could trigger stagnation is incorrect," Trichet said, according to an English-language transcript published on the ECB's Internet site.

"I firmly believe that in the current circumstances, confidence-inspiring policies will foster and not hamper economic recovery, because confidence is the key factor today."

DENIES DEFLATION RISKS

In a letter to G20 leaders last week, President Barack Obama warned against the premature withdrawal of stimulus policies and urged flexibility in implementing fiscal policy to safeguard and strengthen the recovery.

Billionaire investor George Soros said on Wednesday Germany's budget savings policy risked destroying the European project, pushing weaker euro zone members into a cycle of deflation.

Asked about the risk of deflation, Trichet said: "I don't think that such risks could materialize," adding that inflation expectations were well anchored.

Welcome Back Deflation

By my model the US and Europe are already back in deflation.

In the US housing has collapsed, government bond yields have collapsed, the stock market is not acting well, bank credit continues to drop, and mark-to-market value of debt is headed south.

Those are symptoms of deflation but collectively they tell the story of failed reflation efforts of central bankers.

For more on the symptoms of inflation and deflation please see Humpty Dumpty On Inflation

Nearly all of the conditions one would expect to see in deflation are once again present. GDP is still positive (for now), but that is only because of an amazing amount of stimulus (government spending) that has now clearly worn off already.

The private sector is in shambles and housing is back in the gutter.

Trichet Plays Politics

Of course Trichet cannot come out and say "Expect Stagnation" although stagnation is the very best one could expect. Another global contraction is far more likely.

Nonetheless, the ECB and UK have adopted the correct policy - to pay the price now. There can be no return to growth backed by government spending and more debt.

Greenspan's massive reflation effort led to the housing bubble that collapsed. This reflation effort did nothing but bail out banks and Wall Street at the expense of taxpayers.

It is absurd to think government is the cure when it should be crystal clear government spending is the problem.

Besides there is nothing at all wrong with deflation. Yes there will be some short-term pain, but the Keynesian "cure" just digs a deeper hole. For further discussion, please see Krugman Suffers Foot-In-Mouth Disease; Lessons on Price Stability.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in