Why Europe is doomed, in 3 paragraphs

Washington Post ^ | 10/27/2014 | By Matt O'Brien

[SeekAndFind]

This, from Reuters, tells you everything you need to know about Europe's continued descent into depression:

According to German officials, Merkel felt betrayed by Draghi's speech at a central banking conference in Jackson Hole, Wyoming in August in which he pressed Berlin for looser fiscal policy to stimulate the economy.

Her entourage is also deeply skeptical about Draghi's plan to buy up asset-backed securities (ABS) and covered bonds in the hope of encouraging commercial banks to lend.

Most of all, politicians in Berlin worry that if this scheme doesn't work, the ECB president will be tempted to launch full-blown government bond buying, or quantitative easing. This is a taboo in Germany and a step Merkel's allies fear would play into the hands of the country's new anti-euro party, the Alternative for Germany (AfD).

Here's the background. Euro-zone inflation has fallen to just 0.3 percent, more than low enough to hurt their not-really-recovering economy. That's because lower than expected inflation makes debt burdens higher than expected, so borrowers have to cut back—usually more than lenders increase their own spending. Not only that, but "lowflation" makes it harder for Europe's crisis countries to regain competitiveness, because it forces them to actively cut wages—which increases unemployment—to do so. In short, Europe needs more inflation, and it needs more inflation now.

But instead of doing anything about it, the ECB has just told people to pay no attention to the disinflation behind the curtain. It was all, they said, due to one-off factors that would reverse themselves. So no need to worry about a Japanese-style lost decade with low growth and low, or even negative, inflation feeding off each other in a cycle of quiet doom.

This façade lasted until August.

[jsanders2001]

I just sat at a dinner table with a missionary from the UK yesterday who travels all over Europe and he told me “things are very dark” over there on just about every level - economically, politically and spiritually in particular. Islam is a key factor and is taking its toll on Europe. People are losing (real) hope because of the situation.

[null and void]

Stock up on bread...

This should be enough to buy a loaf!

[Gaffer]

Here’s my measure of doom in one sentence.

“When the most popular name in a country for newborn males is a variation of the name “Mohammed,” it is DOOOOOMED.

[demshateGod]

I like Europe’s chances better than ours. They seem to have more fanatics on both sides. I could be wrong.

[rusty schucklefurd]

How does inflation help? I know that some people liked it when inflation was higher because their investments earned more interest, but if the cost of everything goes up, how does the higher interst help (unless the interest on their particular investment went up higher than the inflation rate)?

I admit I am not an economist. Are inflation and interest rates tied together? I’ve always thought inflation was a negative.

[henkster]

When a pensioner gets arrested in Britain for saying “I am not a muslim” while going through a security check, you know they’re done.

The guts of Europe were torn out at the Somme, Verdun and Stalingrad.

[Blood of Tyrants]

That was when a blank sheet of writing paper was worth more than a bucket full of “money”.

[Rennes Templar]

“..disinflation..”

Is that like misunderinflaton?

[SVTCobra03]

I like Europe’s chances better than ours.

I like our chances better. We have more guns.

[Phillyred]

Abortion and the love of career over children/family is killing the west. Europe first. It doesn’t take long to destroy a civilization when you convince multiple generations of women that child-rearing is not useful.

[Boogieman]

Well, inflation is your enemy if you are a saver, but if you are in debt, like governments, then inflation is your friend.

You take out a loan, of $100 million in today’s dollars, but you get to pay back say $110 million in tomorrow’s dollars. If tomorrow’s dollars are worth less than today’s dollars, your debt burden shrinks.

[JoeFromSidney]

Back during the Nineteenth Century there were many economists and politicians who were referred to as "monetary cranks." Their universal cry was that there wasn't enough money; that to create prosperity, governments needed to create more money. William Jennings Bryan's famous "cross of gold" speech was a call for cheapening the dollar by creating more money.

Ever since, "respectable" economists and politicians have continued the demand to cheapen the dollar (or other currency). The idea is that inflation "greases the wheels" of the economy by making it easier to pay off debts and recover "sunk costs" using cheapened dollars.

The advocates of this approach completely overlook the effect of such policies on reducing savings (spend it now before inflation destroys it) and ultimately on investment. Moreover, it's not just monetary investment, but all future-oriented activity. Inflation shortens people's time horizons. Why work for something that's a long way off? Why prepare for a problem that's a long way off?

When Keynes was asked about the long run effects of the inflationary policies he recommended, he said, "In the long run we are all dead." True. But my children and my grandchildren are now having to deal with the long run effects of Keynes's recommended policies. Unless you're not planning to have any children (Keynes was homosexual), you should be concerned about the long run. As someone has put it, anyone who has children has given hostages to the future.