Monday, August 18, 2014

Oh, No! Not lower prices!

From today's Open Europe news summary:

Italian Finance Minister Pier Carlo Padoan has said in an interview that the ECB “has to be consistent and bring [eurozone] inflation close to 2%...which is very far from current levels.” Separately, Handelsblatt reports that the Deflation Risk-Indicator (DRI), an early deflation warning system for the eurozone, currently stands on 0.47 with a score of 0.5 marking the point at which risk of deflation becomes acute.

It is hard for someone like me--who lived through the terrible stagflation (high unemployment plus high inflation) years of the 1970's--to understand that anyone could wish for higher inflation.  Inflation devastated American manufacturing by effectively taxing capital: i.e., highly capitalized industries like autos and steel could deduct only historically low capital costs from their tax bills and did not have the funds to replace them at higher prices.  The very fact that there is a "Deflation Risk-Indicator (DRI)" is itself astoundingly dangerous and indicates the total triumph of the radical Keynesians in the halls of governments and central banks.

Germany cannot carry Europe any longer

From today's Open Europe news summary:

Persson: Eurozone still an awfully long way from becoming a healthy and vibrant economic bloc
In the Sunday Telegraph, Mats Persson argued that while the risk of a euro breakup has subsided, “the currency zone is still an awfully long way from becoming a healthy and vibrant economic bloc.” He notes that Germany is unlikely to be able to carry the Eurozone in the long-term: “Bear in mind that at the moment, Berlin seems to be doing its utmost to lose its competitive edge: the current coalition has introduced a high minimum wage, lowered the retirement age and is sticking to a commitment to eliminate nuclear power in favour of renewables, raising costs for everyone.”

When the German economy fails, the EU and the euro fail. Germany has subsidized Europe for years without beneficial effect, and now its own economy is ailing.  Furthermore, its own politicians seem determined to weaken it even more.  Philipp Bagus' prescient analysis of the inherent flaws in the euro are coming true.

Thursday, August 7, 2014

I'll punish you by starving my own people

Re: Russia bans food imports from US and EU

Putin has banned food imports from the US, EU, Canada, and Japan.  He is waging war against his own people in the misguided view that it is money that people desire and not the goods and services that money will buy.  Those who remember the dark days of the Soviet Union know that the Russian people of that era had plenty of money; there simply was nothing to buy.  So Putin is proving to be a product of Soviet era economic ignorance.

Monday, August 4, 2014

Trade does not need to be "managed"

From today's Open Europe news summary:

Writing in the Telegraph, London Mayor Boris Johnson argues that “It is clear that 25 years ago we made a miscalculation about one of the consequences of EU enlargement. We were right to want to expand the EU… But I think many of us naively and vaguely believed that this enormous expansion would have a beneficial effect on the Brussels imperium… we thought a wider Europe would be looser and shallower – more of a confederal free-trade zone. That is emphatically not what has happened.”
There is nothing that a nation can gain from belonging to the the EU that it could not gain by unilaterally adopting free trade. Why is a supra national organization required in order to trade freely with the world? There are no rules required via international agreements in order to "manage" trade.  The market manages trade.  The beneficial consequences of the British repeal of its "Corn Laws" in the mid nineteenth century should have settled this issue for all time.

Saturday, August 2, 2014

My letter to USA Today re: John Waggoner's Sleight-of-Hand

Dear Sirs:
John Waggoner perpetrates a sleight-of-hand on his readers when he equates investing with gambling in regard to Paul Singer demanding repayment of his Argentine bonds.  Investing is ruled by law, and Mr. Singer is demanding that the law be upheld.  In the long run even the Argentinians may thank Mr. Singer, although I doubt it.  Perhaps future governments will not be as irresponsible as past ones, knowing that they cannot easily renege on their contracts.

Friday, August 1, 2014

London's press jumps on the QE bandwagon

First the Financial Times and now the Economist have jumped on the quantitative easing (QE) bandwagon and called for the European Central Bank to embark on a policy of buying assets in the open market at above market prices--with printed money, of course.  What a disappointment for once great publications located in what was once the heart of financial probity.