Global Economic
Trend Analysis

Recent Posts

Sunday, November 23, 2014 12:54 PM

Wrong Three Ways: Europe Not at Risk of Full-Blown Deflation Says ECB Vice President

Statements from various high-ranking central bank officials prove they are totally clueless.

For example, please consider an announcement today by European Central Bank (ECB) Vice President Vitor Constancio: Europe not at risk of full-blown deflation.

During a debate in central Italy, Constancio said he did not think "that in Europe there is the risk of falling into full deflation" because nominal salaries would have to fall in all member countries "and this cannot happen".

Cannot Happen?!

One really has to wonder about what is in these central banker's heads. Constancio is wrong at least three ways.

Wrong Three Ways

  1. Even if nominal wages and salaries rise, consumers can choose to deleverage, paying down debt, rather than spend.
  2. It is not impossible for aggregate wages and salaries to drop in all or nearly all member countries, and indeed I expect just that when the European recession hits Germany. 
  3. Advantage of inflation grossly misstated.

1. Can consumers choose to deleverage rather than spend? Sure, why not? Demographically speaking, Europe is in such bad shape, one might even expect just that.

2. Europe is clearly flirting with recession (see France Private Sector Output Drops 7th Consecutive Month, Orders Stagnate in Germany, Eurozone Flirts With Contraction).

And in a European recession, one would normally expect aggregate wages and salaries to drop in all (or nearly all) member countries. Parts of Europe are already in deflation and recession. All it takes is Germany to join the party and it will be deflation across the board.

3. Inflation isn't all that it's cracked up to be.

Consider Nominal Wages vs. Real Wages Japanese Style as depicted by Japan's Ministry of Health, Labour and Welfare.


Is it possible for prices to rise more than wages? Certainly. Especially if the ECB gets it inane wish of trashing the euro to create inflation.

Bear in mind that "real" does not include the effect of tax hikes. If Europe embarks on a plan to hike taxes, one might expect similar results as recently happened in Japan (See Abe Makes "Grave Grave" Decision to Delay Tax Hike, Gambles on Snap Elections, Seeks "Better Ideas")

Japan is out of deflation, but consumers are far worse off. All Japan has to show for its decades-long effort is debt approaching 250% of GDP.

The statement by Constancio was so superficial, and so wrong, in so many ways, one might wonder if it was purposeful misguidance or if he is really that much of a blockhead.

I suggest the latter.

Mike "Mish" Shedlock

Saturday, November 22, 2014 5:23 PM

"Eagle Cam": Aerial View of London via Video Camera Attached to an Eagle

An eagle got an impressive birds-eye-view of London this week, flying over the city's most iconic landmarks using a Sony HDR-AZ1VR Action Cam attached to its back.

Link if video does not play: Action Cam Footage Shows Eagle Flying Over City of London

The BBC reports Eagle With Camera Flies Over London

An eagle with a camera attached has flown across London and offered a new perspective on some of the capital's best-known landmarks.

The footage was recorded over a week by an Imperial Eagle called Darchan.

The animal has been brought to London from the French Alps by The Freedom Project to mark the 50th anniversary of the International Union for Conservation of Nature (IUCN) Red List.

The Red List compiles the world's most threatened species.
Mike "Mish" Shedlock

2:20 PM

UKIP Picks Up Second Seat Following Tory Defection, Two More Coming Up?

The first one or two people doing something can hardly be called a trend. Yet, all trends start with a movement of One.

UKIP gained a second seat in British parliament as a result of a special election following a Tory defection to UKIP. The first UKIP seat also came from a special election following a Tory defection. Two other Tories are allegedly considering switching parties to UKIP.

Prime minister David Cameron's Tories are clearly under pressure.

Please consider UKIP Gains Second Commons Seat With Victory in Rochester.

The U.K. Independence Party dealt a new blow to Prime Minister David Cameron as it won a second seat in Parliament from his Conservatives in six weeks.

Mark Reckless, who defected to UKIP from the Tories in September and then forced a special election in his seat of Rochester & Strood, 30 miles (50 kilometers) southeast of London, was returned to the House of Commons with 16,867 votes. Conservative candidate Kelly Tolhurst came second with 13,947 votes.

The victory, following that of Reckless’s friend and fellow defector, Douglas Carswell, on 0ct. 9, may prompt further Tories hostile to Britain’s membership of the European Union to follow suit. The rise of UKIP, which seeks withdrawal from the EU and curbs on immigration, has already led Cameron to promise a referendum on leaving the bloc and to hint he’ll seek an end to the free movement of Europeans into Britain.

Fractured Politics

The result also underlines the way Britain’s political landscape has fractured in the run-up to May’s general election, making the outcome increasingly difficult to call. All three main parties lost votes, with the Tories down 14.5 percent on their 2010 result, Labour dropping 11.8 percent and the Liberal Democrats down 15.4 percent, according to data compiled by YouGov.

“This throws British politics up in the air,” UKIP leader Nigel Farage said in an interview with Bloomberg Television. “If anyone gives you a prediction for the next general election, they’re whistling in the wind. Nobody has got a clue.”

UKIP has the backing of about 15 percent of respondents in national opinion polls, taking support from the Tories in particular. The main opposition Labour Party and Cameron’s coalition partners, the Liberal Democrats, have been losing support to the Greens and the Scottish National Party. The Greens gained about 3 percent in Rochester.
Mike "Mish" Shedlock

Last 10 Posts

Copyright 2009 Mike Shedlock. All Rights Reserved.
View My Stats