Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/11/16_KWN_Weekly_Metals_Wrap.html
Saturday, November 16, 2013
Deflation Fears in Europe
In my reading this morning I came across a rather revealing story on the Dow Jones wires concerning that surprise interest rate cut over it the Eurozone last week. Do you remember? That was when we learned that the ECB had cut its main interest rate down to paltry 0.25%, which by the way is a record low.
Now come some comments from one of their council members, a Luc Coene by name who tells us why the bank acted with no advance warning.
The actual story was reported in a Belgian newspaper, L'Echo. In it, Coene states that recent low inflation figures had greatly concerned the members of that council.
here is a quotation: "Once the first signs of deflation are showing, it's already too late to do something. So we've avoided playing with fire".
This confirms my suspicion that the bond buying programs of the Central Banks are losing efficacy.
Here is the problem - what happens when or if the economy no longer responds to ultra low interest rates, Quantitative easing/bond buying programs, government stimulus measures etc? Then what?????
I have said it before and will say it again - the problem is excessive levels of debt combined with deep-rooted, systemic structural issues that MUST be dealt with. Monetary policy cannot in and of itself CURE ANYTHING. All it does is to create huge imbalances and distortions in certain asset classes. We are witnessing this first hand in the ever-inflating bubble in the equity markets.
The Yellen-led Fed will do absolutely nothing to slow this process.
Now come some comments from one of their council members, a Luc Coene by name who tells us why the bank acted with no advance warning.
The actual story was reported in a Belgian newspaper, L'Echo. In it, Coene states that recent low inflation figures had greatly concerned the members of that council.
here is a quotation: "Once the first signs of deflation are showing, it's already too late to do something. So we've avoided playing with fire".
This confirms my suspicion that the bond buying programs of the Central Banks are losing efficacy.
Here is the problem - what happens when or if the economy no longer responds to ultra low interest rates, Quantitative easing/bond buying programs, government stimulus measures etc? Then what?????
I have said it before and will say it again - the problem is excessive levels of debt combined with deep-rooted, systemic structural issues that MUST be dealt with. Monetary policy cannot in and of itself CURE ANYTHING. All it does is to create huge imbalances and distortions in certain asset classes. We are witnessing this first hand in the ever-inflating bubble in the equity markets.
The Yellen-led Fed will do absolutely nothing to slow this process.