The Great Debate UK
from The Great Debate:
Beware reflation
-- Jeff Rubin is Chief Economist at CIBC World Markets. The views expressed are his own. --
Fighting the recession will not be without its costs.
Washington has already racked up nearly a $2 trillion deficit to ensure that America’s credit crisis does not lead to a replay of Japan’s lost decade of economic growth. But it's not the specter of Japanese deflation we should fear. Far from it. History shows unequivocally that it is reflation, not deflation, that is the dancing partner to these size public deficits.
Saddled with a deficit that will mortgage the future of a generation of taxpayers, Washington will turn to what it has always done to alleviate such fiscal burdens. It will monetize the deficit, using the subsequent burst of inflation to rob bondholders of their real return. While the bonds will mature at par, what that buys may be a whole lot less than what the bondholder expected, thanks to the inflation trail that always follows in the wake of financing such mega-deficits.
Bondholders who financed America’s World War Two deficits saw their bonds lose nearly 15 percent of their real value in the ensuing inflation that peaked at around 17 percent in 1947. Bondholders who financed the Korean War also lost from inflation, which quickly went from negative territory to almost 10 percent. And twenty years later investors were once again swindled by reflation out of their return from financing the deficits that arose during the Vietnam War. Inflation robbed those bondholders of nearly a third of their real return. The later two deficits were less than half today’s in relation to the size of the US economy.
from The Great Debate:
China risks overcooking the economy
-- Wei Gu is a Reuters columnist. The opinions expressed are her own --
While China has been outspoken in expressing concern about the United States printing too much money, those worries might be better focused at home. No country beats China when it comes to effective monetary easing.
Beijing has scrapped lending quotas, adopted a loose monetary policy and kept interest rates at a four-year low to boost liquidity and promote growth. The policy has worked. China has lent out more money in the first four months of this year than the whole of 2008. Money growth in China is up more than 25 percent this year, versus about 10 percent in the United States. Click here for a related graph.
from The Great Debate:
Europe frets over crisis exit strategy
-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --
Higher taxes? Lower public spending? Devaluation? Inflation? Investment in green growth?
European governments are pointing in very different directions as they debate an exit strategy from the global financial crisis. Despite European Union efforts to coordinate economic policy, there are clear signs that the main European economies will charge off in disarray towards separate exits.
from The Great Debate:
First exit for the Fed
-- Agnes T. Crane is a Reuters columnist. The views expressed are her own --
Call it a battle for beginnings and endings, and the Federal Reserve is smack in the middle.
As Fed policymakers convene for a two-day meeting starting on Tuesday, the lines are growing more defined between those who want the Fed to do more to stimulate a still fragile economy, and those who are calling for a defined exit strategy to prevent the global economy from going into an inflation-inducing overdrive.
Pensioners feel pinch from low rates
- Sharon Bratley is chartered financial planner at Fair Investment. The opinions expressed are her own. -
What does the decision by the Bank of England to keep interest rates at a record low of 0.5 percent mean for the average Briton in retirement?
Deflation? It’s inflation you need to watch
– David Kuo is a director at the financial Web site The Motley Fool. The views expressed are his own. –
What are consumers supposed to make of the latest inflation numbers? Do we have inflation, deflation or a bit of stagflation?
from The Great Debate:
Let sleeping shadow banking systems lie
-- James Saft is a Reuters columnist. The opinions expressed are his own --
Rather than vainly trying to refloat the shadow banking system, the U.S. would be better off grappling with the inevitable ultimate solution -- debt destruction and inflation.
The common denominator of policies like the Term Asset-Backed Loan Facility (TALF) that was detailed on Tuesday, is that they try to solve fundamental problems with indebtedness by attempting to float asset prices high enough that they are back in proportion with the debt.
from The Great Debate:
Commodities send coded clues on inflation
-- John Kemp is a Reuters columnist. The views expressed are his own --
After an 8-year period of remarkable stability, the ratio between gold and oil prices has broken down spectacularly.
The relative rise in gold is consistent with other indications that the market is bracing for a delayed upturn in inflation between 2010 and 2012.
