The ECB in the sky
with Diamonds
In the last decades modern economics lost contact with reality. The latest statements from the ECB, OECD and IMF to fight the looming deflation in the Euro Zone being the latest prove. The economists have lost their sense of reality behind their indexes as it seems. We start our tale with the Consumer Goods Price Index telling only half the story about inflation in the EU. Compared to the small plus of 0.8% in the Euro Zone for all goods, the prices for vegetables, fruit's, cereals and electricity have risen more than tenfold. |
To make matters worse the food and electricity prices
rise fast in the countries being hit hardest by austerity: Greece, Spain
and Portugal!
In the year 2011, accordingly to the Oxfam report „A Cautionary Tale - The true
cost of austerity and inequality in Europe” (*1), more than 120
Million face poverty in Europe. To fulfil the
prophecy the total public spending from 2010 to 2014 was cut by 40 percent of
GDP in Ireland,
approximately 20 percent in Baltic States, 12 percent in Spain and 11.5 percent in the UK. In reality
this means cut's in health care, social welfare programs, education systems
etc. worsening the living conditions of the low value human capital further –
speaking in economic terms.
|
Let us focus on Spain. After five years of
stop-start recession they have an unemployment rate of 26-percent. Many
Spaniards battle to pay their electricity bills, the third highest in the
European Union. By the end of 2012, 17.9 percent of Spanish households - more
than three million - were unable to adequately warm their homes, according to
the National Statistics Institute. On it goes with the rise in child poverty
and child malnutrition in Catalonia, Spain, since
the economic crisis. Furthermore a decrease in calories purchased and
substitution to unhealthier foods, especially in families with young children
is happening. We can guess the same occurs in all countries with food and
electricity prices rising.
|
On the other side Portugal,
Ireland, and Greece
have slashed relative labour costs by 15% since 2009. Maybe they have thus
achieved current account surpluses and are no longer “living beyond their
means” like Draghi sad it so nicely, but they are also increasingly „living
beyond their means to buy food and electricity“! Meanwhile the Spaniards are
rebelling against the high electricity prices, which have soared by 42 percent
since the economic crisis erupted in 2008 accordingly to AFP's Anna Cuenca.
To understand the drama we look at the social equation: on the left side the countries are forced to cut labour cost's and government social spending, while inflation will be pushed on the right side leading to faster rising food and electricity prices. Here we have all the signs of an European wide public health emergency that is in danger of going unnoticed in the skyscrapers, until it is too late to take preventive action. If it comes to the point where the ECB will fight low inflation with another quantitative easing (QE) wave, we will see the next round of protests in Europe, but this time driven by food insecurity tearing Europe and the Euro apart. To understand the solution we have to take a look at the official fairytale of deflation which paints the darkest of all pictures for all of us. We are told that deflation means poverty and chaos. Nobody would buy something any more, all investments postponed into the future thus unemployment rocking sky high. But is this picture true? Let's test theory with reality, something modern economic science seems to avoid at all costs - lately getting worse! Japan is the place to go. Many years this country was plagued by deflation ranging from 0% to -1.5%. If economic theory is right, we should see the consequences in the unemployment graph. But if we compare both graphs with each other we see no correlation. Especially from 2004 till 2008 the unemployment rate in Japan was falling sharply while deflation went on till the economic crisis took over (During the whole time the low wage sector was growing, but this happened in all industrial countries). Further we saw that the Monetary-Policy of the Bank of Japan which tried everything had till the economic crisis in 2008 no real effect on deflation - besides cheap money for the banks (*2). |
So if the ECB truly wants to push inflation reality
tells us that the austerity policies, wage level cuts and the resulting
unemployment could be the true source behind the looming deflation in Europe. But as it seems the idea that goods need buyers
never made it into the theories explaining the reasons behind deflation. Is
modern economics so far gone into the sky with Diamonds that they cannot
understand this obvious connection behind low inflation in our case? (Assumed
that food and electricity are an exception of last resort because people will
always buy these commodities till the end, cancelling all other expenditures
first.)
To prove the theory we of the European Occupy Centralbank (EOZB) ask the ECB what would happen if the next round of QE would go directly to the people of Europe in a three year tender of just a trillion to start their own business and cooperatives? How would the Consumer Goods Price Index react on that move, Mr Draghi? This would be a drastic measure to fight deflation at all costs! Sad thing to tell economic theory is not designed for the well being of people but for the balance sheets of financial institutes and other sand castles- soon blowing in the wind. As proof we take the scientific explanations of the ECB knowing only one end for any economic problem: the next social welfare program for the too big to fail and too big to jail players thus forcing the small stake holders to build real barricades ... let the Hunger Games begin Mr. Draghi! *1: A Cautionary Tale - The true cost of austerity and inequality in Europe http://www.oxfam.org/sites/www.oxfam.org/files/bp174-cautionary-tale-austerity-inequality-europe-120913-summ-en.pdf *2: Two decades of Japanese monetary policy and the deflation problem. Takatoshi Ito and Frederic S. Mishkin http://www.nber.org/papers/w10878.pdf |