Comments on: German inflation to rescue euro economy? Insights behind the investment headlines Wed, 16 Nov 2016 21:43:49 +0000 hourly 1 By: Gray62 Wed, 07 Mar 2012 08:52:08 +0000 This whole healing-by-inflation idea is just utter nonsense. Some counterproductive facts should be obvious to everybody, but are conveniently ignored by the pundits:

-In a common currency zone, it’s very difficult to limit inflation to one nation. If there’s a surplus of liquidity, it will rise the tide everywhere, with only minor differences.

– You can’t simply ignore the preferrences of the voters. German people will protest inflation much more vehemently than folks in the South, who are more accustomed to that. And German politicians probably are more efficient than those in the South in fighting inflation. So, the nations in the South will be hit harder, which is totally the contrary of what shall be achieved!

– Wage increases always lag behind inflation! So, the short term effect will be that the purchasing power of the majority of the population is REDUCED. It doesn’t matter that the nominal GDP will rise when actually less products are sold (at higher prices) and thus the real output decreases, with negative consequences for employment. Inflation doesn’t increase domestic demand, that’s just an optical illusion.

– Maybe that decrease of the purchasing power of the incomes can be compensated by the people spending more of their savings instead, which will constantly lose value. But a reduction of the saving rate, especially among the lower and medium incomes, isn’t socially desirable at all! Even more money concentrated in the hands of the 1%, while the 99ers have no reserves at all for hard times? Idiocy.

Not a single one of those pro-inflation hawks ever presents a thorough, cohersive picture of the consequences. They know dang well why – because it would show that their great idea has many negative consequences! That cure could easily be worse than the desease. There simply is no magic recipe, improvement can only come through tough work on reforming the nations. Ignore all the snake oil dealers!