With year-over-year inflation in Europe running at just 0.7%, and core inflation at a record low of 0.8%, the European Central Bank should seriously consider an interest rate cut at their meeting this Thursday. While it won’t improve weak bank lending, it would weaken the overvalued euro, boosting exports. It’s better to prevent deflation because as Japan has shown, once deflation becomes entrenched, getting rid of it is very hard.
Tag Archives: European Central Bank
Monetary Medicine
Things can’t possibly be good when yesterday, in less than an hour, the ECB, The Bank of China, and The Bank of England all offered monetary medicine to the weakening global economy. Problem is, easier monetary policy won’t help much. What’s needed is stimulative fiscal policy. Separately, while US labor market conditions are worse than in Q1, they’re not terrible. Tomorrow’s employment report will show less than 125,000 new jobs.
Irish GDP
The ratio of Irish debt/GDP is now 100% and approaching an unsustainable 120%. Now each 1% point reduction in the interest rate the Irish pay the European Central Bank for their bailout loan cuts their long term debt load by 0.4% of GDP. But, every 10% reduction in unsecured, unguaranteed bank debt equals 1.3% of GDP. So bet on investors in bank debt taking an unplanned haircut.