Continued EU Weakness Gives Rise to Two Inflationary Trends
By Staff News & Analysis - August 26, 2014

German economy 'losing steam' as business confidence plunges again … Survey of optimism among companies adds to gloom enveloping Europe's biggest economy … Germany's businesses are rapidly losing confidence in the prospect of a recovery in the eurozone, in a further blow to the single currency's biggest economy. Companies' assessment of the business climate is now at a 13-month low, having deteriorated for four successive months, according to a survey of 7,000 firms conducted by the Munich-based IFO think tank. – UK Telegraph

Dominant Social Theme: Something must be done to save Europe and the euro.

Free-Market Analysis: What does the future hold? More and more money stimulation it would seem. China – the BRICS – and the US are printing endless gouts of money, and now it appears as if the European Union is headed in the same direction.

In fact, the EU cannot simply print, as the Germans stand in the way. But according to this article and others, the German economic situation is declining, so perhaps there will be less pushback to plans to stimulate.

Certainly, without German economic vitality, the eurozone is even worse off than it's been in the past. Here's more:

The study is the latest blow to Angela Merkel's hopes of Germany leading the eurozone out of its current economic malaise. Separate data for investor confidence and inflation have also shown activity slowing down. The economy contracted in the second quarter of the year, and another quarter of decline would tip it into recession.

The IFO indicator – which measures business's assessment of the economic climate against a level of 100 at the start of 2005, came in at 106.3 for August. This was the lowest since the 106.2 in July 2013 – before the eurozone had officially exited recession.

The guage has now fallen by a measure of 1.7 for the last two months, the largest falls since April 2013, The crisis in Ukraine and continuing weakness in the rest of the eurozone has weighed down Germany, which emerged relatively unscathed from the 2011 eurozone crisis.

"The German economy continues to lose steam," said IFO president Hans-Werner Sinn. "The firms were again less satisfied with their current business situation. Also with regard to the further course of business, they are more sceptical than in the previous month."

The dismal figures are likely to add further pressure on European Central Bank president Mario Draghi to pursue quantitative easing, the policy adopted by the Bank of England and the US Federal Reserve to stimulate growth.

The article also mentions that French President Francois Hollande intends to form a new government after "criticism of its economic management by the country's economy minister."

Germany and France lie at the heart of the EU's economic motor. But France has been staggering economically for years and now Germany is beginning to fade. Spain, Portugal and Greece are faced with various levels of economic dysfunction and it was recently announced that Italy has slipped back into recession.

Blame it on the euro. This structurally flawed and rigid currency has submerged half of Europe in a Great Recession, and now it appears that the other half of Europe may be faced with a Great Inflation.

Another UK Telegraph article entitled, "Eurozone opens doors to QE as Germany and France stumble," makes this point clearly. The article states bluntly that the European Central Bank may initiate "radical action" as the European malaise continues and widens after some six years of failed stimulus attempts.

Here's how the article puts it:

The eurozone has moved closer to adopting further radical measures to ward off a second recession and a spiral of deflation after its two biggest economies fell deeper into trouble yesterday.

The dual shock of a French government reshuffle and weaker-than-expected German figures yesterday threatened to add to the malaise in the eurozone, where unemployment remains stubbornly high, and growth is at a standstill.

Somewhat counterintuitively, this resulted in stock markets across Europe surging and government borrowing costs falling to new lows as traders reacted to indications that Mario Draghi, the European Central Bank president, may be opening the door for large-scale asset purchases and further cuts to interest rates.

The continuing bad news reinforced comments from Mr Draghi on Friday in which he suggested the situation in the eurozone has reached a point where the ECB may be justified in following the Bank of England and US Federal Reserve in engaging in a substantial programme of money printing.

The eurozone has been steadily heading towards deflation, with prices rising by just 0.4pc in the year to July, leading to fears of a Japanese-style "lost decade" of economic stagnation. In a speech delivered at the Jackson Hole symposium in Wyoming on Friday night, Mr Draghi acknowledged that even long-term inflation forecasts have now fallen below the ECB's 2pc mandate. He said the central bank would "use all the available instruments needed to ensure price stability over the medium term".

According to Nomura economists quoted in the article, the ECB could cut interest rates even further while embarking on a campaign of asset-backed purchases that might include a "fullblown" QE.

What's the timing of something like this? According to the article, "the market is clearly expecting a large-scale asset purchase programme, maybe not at the next meeting but by the end of the year."

It would seem that even as the US is scaling back such programs, Europeans may be exposed to an aggressive variant of the same strategy. Again, yesterday, both the S&P and Dow averages were higher, with the S&P moving across an important 2000 level. There are two main results of these developments, one parochial and the other political.

From a parochial perspective, various stimulating policies will continue to power markets upwards – at least in the near term or until a definitive market event generates a radical downward movement.

Looked at in larger political terms, the European malaise is gradually creating a paradigm in which pan-European facilities like the ECB are accruing power at the expense of member nations.

After Thoughts

Neither of these trends are especially positive from the standpoint of monetary stability but they are nonetheless in play and will continue to have a significant impact on the evolution of the West's and the world's economy.

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  • Bill Ross

    DST: “Something must be done to save Europe and the euro.”

    well, ask any socialist: We must destroy you to save you.

    War is coming and Europe, once again will be the killing fields. Once all infrastructure and property is destroyed, we can build anew and the survivors, being far fewer, closer to the edge of survival will, by the survival imperative, be more willing to accept servitude and labor for subsistence wages.

    After all, war is the health of the state until civilization is consumed by the costs / fires it has itself set.

    The war between the productive and unproductive will continue to rage, destroying civilizations (creating a power vacuum, allowing economic freedom), allowing the rise of new civilizations until they too are in the grip of predators, repeating the cycle of collapse, triaging and population reducing mankind:

    …until we AGAIN individually and collectively wake up and INSIST that corrupt “rule of predatory man” be replaced by “rule of law”, the only KNOWN solution for “keeping the peace”, for all of known history:

    We, individually and collectively survive and adapt to excellence OR perish in war of all against all depending on what we choose to do / tolerate:

    stay tuned, no fate but what we make (choose, or tolerate others to choose for us). Future history can either be a blank slate, propelled by peace, freedom and innovation or a boring re-run of serial crimes and destruction against civilization and the civilized.

    • Pinstripe

      Cool story bro.

    • The predation of the part upon the whole and thus of all parts upon each other is an insanity or self-deception to awaken to that it runs and thus awaken FROM.
      One insists or stands firm within one’s own consciousness in the conviction that a fearfully defined self is NOT an acceptable or legitimate basis from which to then justify coercive (predatory) will upon oneself or on Life.
      To go ‘part way’ with awakening is to stop at seeing the script running IN OTHERS as if it is NOT therefore running in oneself.
      You are the casting director to your own experience. You CANNOT give roles that are not within your own consciousness experience. However FEAR can usurp this level of consciousness and thus redefine all things to protect ITSELF – especially from exposure to a light in which its lack of foundation stands obvious.
      Each of us have our own unique perspective. Anything that fear can distort can be seen clearly when the desire to employ and identify fear is released. Love does change everything (undoes the reversing distortions of fear) and truth does set you (in the realisation that you are) free. And in the ‘meanwhile’ a sense of self-dissonance asserted and given allegiance to does bring an experience of disconnected, struggling, lack and depletion of power and sustenance that cannot BE rebranded into “victory’ no matter how much one sacrifices one’s joy to the god of vengeance for promises that ever recede and evapourate.

      • Marten

        A very enlightning comment…..Amen

  • Me Again

    What the US, UK and the BRICS are doing is destroying savings UNLESS those savings are in property or some such. But they don’t care about workers who want to retire, they don’t think the silver surfers are worth consideration.

  • Bruce C

    To me this another awful and depressing article.

    Once again, no one is asking how “money printing” is supposed to help.

    • Perhaps you’d find CNN more uplifting?

      • Bill Ross

        Bad advice, but, how else can U respond? We have “inadvertently” (by elites and information subversion) been Pavlov conditioned to ignore feel good / trust us “arguments” rationalizing what those allegedly “in control” “promise”. Been “bait and switched” too many times.

        Words are “failing us” and people are now demanding “where’s my beef” (fruits of labor) and receiving only BS. Not long before the majority of people, in general, planetwide, “carpe diem” out of REAL survival neccessity:

        Agree with you (DB) that whining about reality being depressing can only be met with a “take another blue pill” recommendation:

        and, after becoming immune to placebo’s, then, “we can talk” (and, hopefully, ACT)

      • Bruce C

        That’s not funny.

        • Bill Ross

          Yes, it was

          • Bruce C

            If that was an attempt at humor then okay, but my initial interpretation was that I should just stick with the more pollyanna if I can’t handle “the truth”.

            So, I misunderstood, like they often do me.

            Just because something is “true” doesn’t mean that one shouldn’t feel empathy. And just because one feels empathy doesn’t mean one necessarily loses perspective either.

            Intellectually I’ve always resented Europe and their socialist policies, and I think that everyone is getting what they deserve. Emotionally, however, I feel sorry for them.

      • Bruce C

        It’s “awful and depressing” because EU authorities are going to impose their will on the populace whether they want it or not and it’s going to compound the systemic problems even more. There may be no going back.

        But maybe the populace can stop it. I don’t know. But they may not want to, or – rather – they don’t want to suffer through the consequences of the socialist policies that created their situation in the first place.

        • alaska3636

          Albert Nock is a pretty good cure for intellectual depression.

          If I thought anyone was gonna kill himself for “seeing things as they are,” I would have guessed Nock. But he sallied forth making humorous observations about the human condition, it’s futile inertia, and hoped that a “remnant” might at least carry the torch of reason forward after everyone stupidly killed themselves…

          Seriously though: I figure all you can really do as a human is observe these things humans do, try and ascertain something of the nature of the universe, take human action as you see fit (trying to do no harm, of course 🙂 and, otherwise, find the joy in this world where you can.

          It’s the most rational thing there is to do…

    • ιλαροτραγωδιών

      It can not be ‘helped’. We can however help ourselves. Do-gooders bent on helping society seem to be our biggest problem. Appreciating the irony beats wallowing in despair…

  • Without the post WW2 shock and guilt tactic there would not be an EU in the current sense of a negatively defined entity. For its foundational raison d’être is not economic or cultural exchange and abundance, but the ensuring NEVER AGAIN of such horror as has been imprinted and embedded and continues to be imprinted and embedded into a negatively defined society.

    Negatively defined self operates as a deception in which fear runs a self-fulfilling prophecy.

    Perhaps history repeats itself simply because the story is believed. Story is so fundamental to human consciousness as to be its ‘operating system’ as a virtual layer within which to identify and assert meme-bership of such story.

    The convoluted efforts to protect and maintain a lie or false story against the Intimate Movement of Reality Unfolding become an ever more complex ‘defence system’ that becomes so fractured and conflicted within itself as to disintegrate.

    In the revealed truth that shines obvious in absence of asserted coercion, is the true role of our self-definition and its story-children illuminated. Go forth and multiply – but if you seek to hide the Gift of Life so as not to lose it, you will multiply lack and nothingness, no matter how finely it is dressed up and presented.
    What you appreciate (give focus and value to) appreciates or magnifies to your awareness. Go for what you truly want and beware of the invalidating stories that would pull you into the crab-bucket of mutual self-scrificial obeisance to a false ‘god’.

  • Danny B

    Europe will continue to fall hard. The West has a high cost-and-wage structure. They are in competition with 3 billion people from a low wage-and-cost structure.
    European collectivism combined with a loss of value-added industries will ensure a continuance of their fall to poverty. An ageing population, low birth rate and high energy costs will give them a repeat of Japan’s economy. Bad economy and low birth rate are self-reinforcing cycles that make demographic problems even worse. Keynes never imagined a State where the people refused to procreate.

  • When libertarians talk about “inflation,” one has no idea what they mean. They have this thing called “inflation” that doesn’t mean a general increase in prices. They mean an increase in the money supply. So when you go to the store and see higher prices, don’t complain to a libertarian about inflation.They call it “price-inflation.”

    Or do they?

    When they talk about “deflation,” the opposite of “inflation,” what do they mean? A general decrease in prices or a decrease in the money supply? It’s actually possible to have inflation without inflation in libertarian-speak.

    Well, nobody uses “deflation” to mean the money supply is falling (or do they?), but inflation, the opposite of deflation, has two meanings. It’s so confusing, but no more confusing than the anarchy the libertarians preach when they talk about “leviathan,” (as though the federal government were more imposing or dishonest than state governments, county governments or city governments).

    Illinois, for instance has sent several governors and many, many aldermen to jail, far more elected officials than the federal government has sent. So who is worse: Illinois or the federal government?

    As for the euro nations, their problem is they are monetarily non-sovereign, meaning they can’t control their money supply. To survive long-term, they need continual infusions of money from outside their borders. But from where? Can they all have a positive balance of payments as Germany has had? No way.

    By contrast, Monetarily Sovereign nations (U.S., UK, Canada, Australia et al) can create their own sovereign currencies at will, and never can run short of money — unless libertarians impose their money-creation limits.

    • Bill Ross

      go away with your “sovereign”, ability to print “wealth” BS. Your “cure” IS the disease.

      • And exactly what is the disease? Is it inflation? Or is it inflation?

        • Bill Ross

          The “disease” is that counterfeit fiat is not money and, therefore there is no longer an objective scorecard to differentiate between productive and unproductive activities. The market is blind, unable to function. The planetary economy is imploding as a consequence and, we risk planetary nuclear war because some “sovereigns” INSIST that real goods / services be exchanged for this counterfeit, worthless crap OR ELSE.

          As a consequence, money is no longer a REAL measure of stored productivity, nor a meaningful medium of exchange. It bears ZERO relationship to productivity. Sovereigns print (decree) their own wealth and forcefully demand that the productive exchange goods and services for this worthless “decree of sovereign liars”.

          • And what is the “objective scorecard” and what is the score?

          • Bill Ross

            With “real” money (tied to a REAL, durable, uncounterfeitable commodity such as gold), the civilized (productive, honest traders) WIN and the unproductive (forceful / fraudulent barbarians) and their apologists such as you LOSE.

            I will not be assisting in you pretending to be stupid and clogging this thread any more. Find another bridge to hide under and snipe the unwary from.

          • Sorry you feel unable to answer questions. Most economics blogs welcome questions, because that provides the opportunity to teach. Of course, if you have no answers, I understand your reluctance.

            Anyway, what specific characteristics of gold make it “real” money?

            If you can’t answer, I’ll understand why.

          • Bruce C

            Gold has all the qualities that a money requires:

            It’s durable, divisible, portable, has intrinsic value, and cannot be created or destroyed easily or cheaply. It can act as a currency or be the basis for a representative currency.

            Fiat “money” isn’t money at all, by definition, but can only be declared legal tender by fiat. “Fiat currencies” are all that is used today for money (except gold when there is counterparty mistrust). They have no intrinsic value and can be created and destroyed at almost no cost.

          • Bill Ross

            you forget the most important point: for all of history, when FREE to choose, people have chosen gold as preferred money for the utilitarian reasons you state. And, also, for all of recorded history people have always distrusted the money changers, for GOOD reason: they are crooks.

            and, RMM has no interest in this or any “facts”. He is apparently paid to flog an agenda, since nobody, including DB has gotten him to admit the obvious fact his chain of “reasoning” is circular tautology. And, when that fails and he is refuted, he claims to not understand, a lack that is allegedly your fault.

          • Bruce C

            Yes, thank you.

    • Bruce C

      Why are you picking on “libertarians”?

      Anyway, if you believe in “monetary sovereignty” so much maybe you can talk France into leaving the euro zone.

      • The are two, and only two, cures for the eurozone economic problems:
        1. Leave the euro and re-adopt your own sovereign currency
        2. Financially merge into something like a United States of Europe, in which the EU gives (not lends) euros to nations as needed.

        No other solutions are possible. All else is fruitless.

        • Bruce C

          Go with Option 1.

          Bon voyage et Bonne Chance !!

      • john cummins

        Bruce, the guy is a troll. Keep him yapping long enough and he will forget about the sunrise and will turn to stone…thus, the yapping will stop!

    • Earl of Isadore

      Roger, I really don’t get why you are down here at the blog level, throwing dust in the air and making a nuisance of yourself. Your argument is with the people in charge of monetary policy at the national level, who are not exercising power you say they have to create unlimited wealth with no downside. It would seem to be an easy sell; just rent out a small office on K street and spend your time in the corridors of power and quit wasting your time arguing with people who just want to be left alone.

      According to your writings, the European Union is monetarily sovereign, yet they do not provide to their subjugated member states the Euros needed to cover their outflows. You cannot explain why they do not when your line of reasoning dictates that they should. The writers and feed backers at the Daily Bell have no influence over the EU decision makers, so what the hell are you haranguing us for?

      We disagree with you! But that is not even the point. We are not your target audience and you’re either misguided or just plain stupid to be arguing your points with us.

      • alaska3636

        He’s a troll.

        • Earl of Isadore

          Shhh, don’t tell Roger, but I know he is. Anyway, he’s good to have around to sharpen your arguments on. He always writes the same thing, so you get multiple chances to practice.

    • alaska3636

      From America’s Great Depression by Murray Rothbard

      “The above are the essential features of a depression. Other secondary features may also develop. There is no need, for example, for deflation (lowering of the money supply) during a depression. (pg. 14)”

      People use words as a means to an end. You can tell a lot about the integrity of the speaker in the clarity of their construction. Some people like Murray inspire trust because – “deflation (lowering of the money supply)” – is clear; others obfuscate and make inane comments meant to disparage without edifying…



    US/UK/Israel ‘Empire’ same as Roman Empire: They make a desert and call it peace August 9, 2014

    Let’s examine connections between the empires of Rome and modern US/UK/Israel to discover possible solutions to restore republic from empire in our world of the present. Roman Empire: History teaches that the Roman Republic devolved into psychopathic dictatorial empire; characterized by oligarchic families competing among themselves for power and wealth within vicious inner-circles.

  • Hugo

    Hi DB,

    Sure are inflationary trends. Today a 3th trend appeared…..

    ”Council On Foreign Relations Proposes That “Central Banks Should Hand Consumers Cash Directly”

    ”To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.”

    Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

    Nicely tied to rising income inequality meme….

  • Alice Maxwell

    The USA is staying afloat with printing money as needed so our satellites will do the same! There is no surprise in this adoption of intent! The people demand ergo the people will get,,,,it’s so simple to just increase the digital flow of credits through our fully automatic banking system. Economic is a dead science, if it ever was a sclence!