Eurozone in Deflation; Monetarist Mouthpieces Will Scream

Townhall.com ^ | March 1, 2014 | Mike Shedlock

[Kaslin]

Forget all the talk about CPI or as they call it in Europe HIPC (harmonized index of consumer prices) floating just under 1%.

The true measure of inflation is credit expansion. And for the second month, credit contracted in the Eurozone.

Reuters reports Euro zone lending contraction compounds ECB headache.

Lending to households and firms in the euro zone fell again in January and money supply growth remained subdued, adding to pressure on the European Central Bank to take action next week to support the economy.

The ECB has cut interest rates to a record low, pumped extra liquidity into the banking system and announced a fresh government bond purchase program, but the measures have so far not managed to unclog lending to the real economy.

Euro zone inflation is also running at only 0.8 percent - far below the ECB's target of just under 2 percent.

Loans to the private sector fell by 2.2 percent in January from the same month a year earlier, ECB data released on Thursday showed. That compared to a contraction of 2.3 percent in December.

Euro zone M3 money supply - a more general measure of cash in the economy - grew at an annual pace of 1.2 percent, picking up slightly from 1.0 percent in December.

Monetarist Mouthpieces Will Scream

Credit contraction news will have all the monetarist mouthpieces screaming yet again.

Ignore them.

Stepping on the gas pedal with QE will not do a damn thing except create an even bigger asset bubble in European equities.

When bubbles pop - and they always do - the only thing monetarists will have to offer is still more monetary stimulus.

On January 27 I stated Deflation Will Return: Europe First, Then US.

Here we are.

For a discussion as to why the monetarists are dead wrong about what to do about the situation, please consider ...

1. What the Crisis Taught Us: More Bubbles! We Need Bigger Bubbles to Combat Deflation!
2. Monetarism, Abenomics, QE, and Minimum Wage Proposals: One Bad Idea Leads to Another, and Another

Throwing money at problems has never once in history solved anything over the long term.

Nonetheless, monetarist mouthpieces who do not understand history will be screaming for more currency intervention.

[Chgogal]

Cash is King in the World of Deflation.

[volunbeer]

QE has never been about the average Joe and his economic well-being. QE is about the “too big to fail banks”, preserving government spending, and the markets.

QE is ripping off the average Joe for the banksters. Why so few people in America (or in Europe) understand this is beyond me. The banksters and politicians would pay when the game collapses if people realize what happened, but we are being conditioned to look at the crooks who created it for salvation.

Strange times FRiend.

[who_would_fardels_bear]

Austrians vs. Friedmanians?

[M Kehoe]

Not to be picky here...

The true measure of inflation is credit expansion.

"A" measure, not the "true" measure.

Ok, who can tell me another measure of inflation (hint: macro).

5.56mm

[Chgogal]

“To grunt and sweat under a weary life,
But that the dread of something after death-
The undiscover’d country, from whose bourn
No traveller returns- puzzles the will,
And makes us rather bear those ills we have
Than fly to others that we know not of?”

Haven't read Hamlet in years.

I'm a Friedmanian. ; )

[Chgogal]

FYI .... heads together ping.

[who_would_fardels_bear]

And on a lighter note, there is this:

Star Trek: File This

(See Episode One)

[volunbeer]

Most us measure inflation in things we understand such as the price of a gallon if milk or gasoline.

Just saying....

[SaxxonWoods]

“Most us measure inflation in things we understand such as the price of a gallon if milk or gasoline.”

Which is why most people don’t understand inflation.

[RedMDer]

Less than $4.9k to go!!

[zeestephen]

The most recent recession began in December 2007 and ended in June 2009.

During that period, USA inflation increased by 2.6%.

From December 2007 to today, USA inflation increased by 10.2%.

That’s “Deflation?”

By the way - someone remind me why stable prices, or prices that drift down slowly, are a bad thing.

[volunbeer]

Which is why most people don’t understand inflation.

---

There are two ways of looking at the economy today to be simplistic -

The view of the average Joe and the view of the economic elite.

The average person observes inflation - we see it at the pump, on the grocery shelf, and in our monthly bills. The prices of things we commonly use are rising far faster than our incomes.

The people who control the debate and definitions are the more educated folks in finance. They argue the opposite and tell us that we need quantitative easing to save our economy and the little man.

I view QE as a transfer of wealth or a tax upon the average man. Those assessing this tax have no decency even as they view it differently. They not only assess us..... they are assessing it on our children and grandchildren via public debt. Those controlling the debate are those who base their economic health on the rise and fall of their portfolio when the vast majority of Americans base their economic well-being on their monthly budget. It’s a disconnect and I believe it will eventually create conflict because you can’t fool people forever.

I understand prices are based on many factors beyond the perceived value of the dollar, but perception is based on which side of the fence you are standing on. Sadly, I think many, to include many conservatives, believe they are on the wealthy side of the fence. They are in for a surprise!