Tuesday, 9 March 2010

Higher inflation, A "Stark" View ...

"... While I do see the temptation for governments to ask for higher inflation in order to monetise the dramatic build-up of public debt, let us not forget that it serves to expropriate the income and wealth of the general public to the benefit of those who have lived beyond their means.

I can only reject the idea of raising inflation rates permanently. I would not like to imagine the consequences if, on top of the current financial fragilities and in an environment of high public debt, the general public were to lose trust in the purchasing power of money...
" ,J├╝rgen Stark
This guy is a member of the Executive Board of the ECB (European Central Bank) and will most probably succeed Trichet as the next president of the ECB in 2011...which is reassuring, in term of inflation fighter thus will not allow a 70's type high inflation scenario (which is anyway not possible due to the population and growth configuration supported by a more globalisation business model).

So what? ... one will dare to say, somewhere in the background...

High debt, growing debt is unsustainable and it is what the current housing market is suggesting to do and so is the current way of living ... "beyond their means"...while salary are deflating or at best stabilizing ( stabilizing which is inconsistent with the current economical climate - one will discover that in the year or two to come)

2 comments:

Andrew said...

"I can only reject the idea of raising inflation rates permanently"

So the ECB is going to target a higher euro devaluation rate until the crisis is over.

HousingFinland said...

First of all the Euro is traded freely and it is the market participants that set it according to their view of the strengh of the economical euro zone.

-so it will weaken

Second the ECB won't need to hurry to raise rates as the inflation pressure is near to zero (credit contracting and wage inflation to absurd levels- even if some union seem to be playing with their member..credulity)

-so the euro will weaken

However in the medium term they could be a risk that the euro weakens futher while short term interest rates shoots up. the reason being that a weak euro combine with an uncontrolable government deficit will push the bond investors to request higher yield forcing the ECB to follow suit...