We Can Inflate Too …

Perhaps it is a coincidence that we get these news so shortly after James Bullard forwarded his ideas as to how the ECB could most effectively join the global inflatathon. In any case, ECB board member Peter Praet – hitherto regarded as a 'hawk' – let it be known that the ECB too has a 'toolkit' at its disposal that can be 'expanded' to inflate the euro area back to economic Nirvana. What a surprise!

According to Reuters:


“The European Central Bank could expand its monetary policy toolkit if needed to respond to threats to price stability, and must ensure the euro zone economy does not enter a downward spiral, ECB Executive Board member Peter Praet said on Wednesday.

"We have an objective: price stability," Praet, who is in charge of the economics portfolio on the ECB's six-member executive board, told a conference in Washington.

"If that objective is at risk, we have the possibility … to expand the range of (monetary policy) instruments if we think it's necessary for that objective," he said.”



(emphasis added)

We already mentioned a year ago for the first time that we eventually expect the ECB to use declining consumer prices, or even a mere slowdown in the rate of increase of consumer prices as 'measured' by CPI as an excuse to step up inflationary policies.  After all, the 'price stability' policy is held to mean that consumer prices should increase on average by 2% per year. 'Stability' in other words means 'constant inflation'. Falling prices are held to be evil, and this is very likely what Praet actually refers to when he speaks of the euro area economy potentially entering a 'downward spiral'.


The 'Evil' of Falling Prices

It has been reported that the pace of consumer price inflation in the euro area fell to 1.4% in April, so we are already in a state of 'semi-evil' so to speak – a devaluation of the monetary unit that is not rapid enough for the taste of the central planners. The idea behind their 'price stability' quackery is that consumers will simply stop spending if prices begin to fall, in expectation of lower prices tomorrow.

According to this theory, not a single computer, cell phone or flat-screen TV should have been sold over the past three decades. After all, their prices have been falling rapidly and without respite. Moreover, the industries associated with producing these gadgets and their suppliers should have been in a permanent state of depression. Somehow that didn't happen, but the idea that falling prices are 'evil' and produce an 'economic downward spiral' is as popular as ever with central bankers and the courtier economists who pen apologias and paeans to central banking socialism day in day out.

Meanwhile, the details of the EU's new 'inflation' report reveal that prices are finally falling ever so slightly in Greece. Greece of course needs lower prices very urgently – one of the reasons for its economic downfall failure to recover is that the inflationary boom that has ruined the country after it joined the euro area has driven prices to levels that have made Greece's industries uncompetitive. Its large tourism industry is especially under strain and falling prey to the far more enticing prospects offered to tourists by e.g. neighboring Turkey. The ECB probably believes this 'lack of price stability' is bad, but in Greece's case it is just what the doctor ordered. It is of course true that existing debt will become more difficult to service, but given that 25% of all loans held by Greek banks are already non-performing, it seems unlikely that the situation can get much worse on that front. On the contrary, if Greece regains a measure of competitiveness due to falling prices, some of the currently non-performing assets may become current again.




Consumer price inflation in the EU: not high enough for the ECB (Reuters / Eurostat).



For a more detailed discussion as to why the 'price stability' policy is as misguided as it is dangerous, see this previous article: “The Errors and Dangers of the Price Stability Policy”.





Emigrate While You Can... Learn More




Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


2 Responses to “ECB Ready to ‘Expand its Toolkit’”

  • Crysangle:

    VAT has an amazing effect on CPI , ‘they’ could try that (again) maybe . In Spain industrial prices declined 1Q , first time since 2009 , driven by energy prices . So I am wondering how the ECB might drive up energy prices next – its a big market to move globally so if they try that method I expect it will have to be domestically with more taxes ? That is not the ECB tool kit really though , so I expect they mean devaluation of the Euro … near zero rates , balance sheet full, no real borrowing going on … no, so maybe they will go for a crisis – ‘we can’t get OMT running properly , the Euro must be worth less ‘ … but when they say tool kit and I am thinking energy for some reason the image of Praet and co. loosening bolts in an oil refinery comes to mind. Most likely they will start pulling strings across the EU and wash over the real reasons for CPI increasing . When was the last time YOU bought something for no other reason than to make sure the price of it stayed high ? You would only do that if there was some profit to be made from doing that … right ? What profit are they offering YOU for making sure you pay a higher price the next time you buy something ? They are offering you that without THEM you will be worse off . Personally though , I don’t like being threatened, and I don’t like the idea of the creation of an unfair dependence which is imposed (you have no choice in that your money will be worth less , they are dependent on your participation, you are obliged to participate) .

    • Crysangle:

      …. And four days later they ‘allow’ Spain to increase its deficit while suggesting a rise in VAT and demanding a rise in fuel tax.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • A Surprise Move in Gold
      Traders and Analysts Caught Wrong-Footed Over the past week gold and gold stocks have been on a tear. It is probably fair to say that most market participants were surprised by this development. Although sentiment on gold was not extremely bearish and several observers expected a bounce, to our knowledge no-one expected this:   Gold stocks (HUI Index) and gold, daily. As noted in the annotation above, a Wells Fargo gold analyst turned bearish at the worst possible moment...
  • May Away
      May Gone in June... Yes, now that June is here, it is indeed the end of May. Theresa May, to be precise, the henceforth former British Prime Minister. After delivering her unparalleled masterclass in “how to completely botch Brexit”, British cartoonists are giving her a well-deserved send-off, which we are documenting below. But first, in case you don't know anything about Ms. May's heroic “Brexit”-related efforts, here is an explanation of how she tried to finagle the best...
  • US Money Supply Growth and the Production Structure – Signs of an Aging Boom
      Money Supply Growth Continues to Decelerate Here is a brief update of recent developments in US true money supply growth as well as the trend in the ratio of industrial production of capital goods versus consumer goods (we use the latter as a proxy for the effects of credit expansion on the economy's production structure). First, a chart of the y/y growth rate of the broad US money supply TMS-2 vs. y/y growth in industrial & commercial loans extended by US banks.   At...
  • Elizabeth Warren’s Plan to Bamboozle American Voters
      A Plan for Everything! The run-up to the presidential primaries offers a funhouse reflection of American life.  Presidential hopefuls, hacks, and has-beens turn to focus groups to discover what they think the American electorate wants. Then they distill it down to hollow bumper stickers. After that, they pump their fists and reflect it back with mindless repetition.   A plea for clemency from Mr. 1/1024th crow. [PT]   Change We Can Believe In.  Feel the...
  • The Ugly End of Globalization
      The Ugly End of Globalization Sometime in the fall of 2018 a lowly gofer at the New York Stock Exchange was sweating  bullets.  He had made an honest mistake.  One that could forever tag him a buffoon.   Art Cashin the living hat-stand, going through a succession of DJIA milestone hats. He promised was going to crack a smile for the Dow 27,000 hat photo, alas, it was not to be. [PT]   After trading sideways for most of the spring, the Dow Jones Industrial...
  • Gold vs. Silver - Precious Metals Supply and Demand
      Is Silver Still Useful as a Monetary Metal? The price of gold jumped a whole twenty bucks last week. We imagine that the marginal gold bug is relieved to be rid of his gold, in this opportunity afforded by the highest price since early April. OK, all kidding aside, the price of silver went up a penny.     The gold-silver ratio keeps hitting new highs recently (this is actually a long-term trend, frequently interrupted by strong rallies of silver against gold). Is silver...
  • Fed Chair Powell’s Plan to Pickle the Economy
      A Loose Relationship The Dow Jones Industrial Average made another concerted run at the elusive 27,000 milestone over the last several weeks.  But, as of this writing, the index has stalled out short of this psychosomatic barrier.  By our estimation, this is for the best.   Since early 2018 the DJIA has gone nowhere, albeit in interesting ways... [PT]   While not always apparent, the stock market generally maintains a loose connection to the underlying...
  • The Italian Job - Precious Metals Supply and Demand
      Lira Comeback? The price of gold jumped 35 bucks last week, and that of silver 48 cents. The dollar is now down to 23 milligrams of gold. Keith is on the road this week, so we will just comment on one thing. If Italy is serious about moving back to the lira, that will make the euro less sound (to say nothing of the lira). That will drive people mostly to the dollar, but also to gold.   Italian deputy prime minister Matteo Salvini (as the leader of the Lega party he is...
  • Paul Tudor Jones Likes Gold
      Gold is Paul Tudor Jones' Favorite Trade Over the Coming 12-24 Months In a recent Bloomberg interview, legendary trader and hedge fund manager Paul Tudor Jones was asked what areas of the markets currently offer the best opportunities in his opinion. His reply: “As a macro trader I think the best trade is going to be gold”. The relevant excerpt from the interview can be viewed below (in case the embedded video doesn't work for you, here is a link to the video on...
  • Bitcoin: What is the Best Day of the Week to Buy?
      Shifting Patterns In the last issue of Seasonal Insights I have discussed Bitcoin’s seasonal pattern in the course of a year. In this issue I will show an analysis of the returns of bitcoin on individual days of the week.   Bitcoin, daily – since bottoming in early December, BTC has advanced quite a bit. It remains an excellent trading sardine. [PT]   It seems to me that Bitcoin is particularly interesting for this type of study: it exhibits spectacular price...
  • Silver Remains a Monetary Metal - Precious Metals Supply and Demand
      Silver Price Driven by Reservation Demand The price of gold went up a buck last week, but the price of silver dropped back 13 cents. And the gold-silver ratio marches further upwards. Keith spoke at a conference this week, about how to analyze the fundamentals of supply and demand in gold and silver. He talked about the basis of course.   Silver coins – silver prices are partly influenced by an industrial demand component, but the fact that they move most of the time with...

Support Acting Man

Austrian Theory and Investment


The Review Insider


Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts


Gold in USD:

[Most Recent Quotes from www.kitco.com]



Gold in EUR:

[Most Recent Quotes from www.kitco.com]



Silver in USD:

[Most Recent Quotes from www.kitco.com]



Platinum in USD:

[Most Recent Quotes from www.kitco.com]



USD - Index:

[Most Recent USD from www.kitco.com]


Mish Talk

Buy Silver Now!
Buy Gold Now!