Ecb Cuts Benchmark Rate To 0.25%

[Venger]

The cut in the benchmark rate is designed to make it cheaper for banks to borrow from the ECB, with the aim that this will be passed on to businesses taking out loans, boosting the economy.

Wonder how the cut will affect Germany. Lots of people want them consumer boom there, stimulate their domestic demand growth, worry less about exports, spend the surpluses and crank up the debt for the high life.

All the contradictory consequences which come with deflation. Wishful thinking policies, meets new market reality policies. Still 0.25% might stoke some speculative bubbles on the way down.

Deutsche Bank CEO says new rules crimp ability to provide loans

Sat Nov 9, 2013

(Reuters) - German companies need to diversify their funding as the implementation of new bank safety rules makes it harder for banks to provide loans, Deutsche Bank (DBKGn.DE) co-Chief Executive Juergen Fitschen told Germany's Boersen Zeitung.

"Companies need to prepare for greater uncertainty when it comes to the availability of bank loans and should strengthen their resilience," Fitschen said in an opinion piece published in Saturday's edition of Boersen Zeitung.

Pressure on banks to cut down the size of their balance sheets, and the need to set aside more money for problem loans, means corporations should use capital market instruments, such as issuing shares and bonds, as a way to raise funds, Fitschen said.

Same as above (no more in article), link just for reference: http://www.reuters.com/article/2013/11/09/us-deutschebank-funding-loans-idUSBRE9A807U20131109

[19 year mortgage 8itch]

This means that every year the value of a given unit of domestically produced goods or services becomes less valuable relative to the currency their debts are denominated in. It is like adding 2% to the interest they pay.

They should just put their prices up by 50% so that repaying the debt is a doddle.

[Venger]

This means that every year the value of a given unit of domestically produced goods or services becomes less valuable relative to the currency their debts are denominated in. It is like adding 2% to the interest they pay.

Depressions also create opportunity. Don't claim to know too much that's going on in Greece, but has to be a good thing the state is bringing loads of assets to sell to market, for private enterprise to consider investing in.

Greece, as I understand it, became a power because of allowing many people a stake in society. Loads of small parcels of irregular shaped land across Greece, owned and farmed by many individual citizens, who formed the bands of Hoplite soldiers to protect the country, each having a real stake in their society.

Depressions are a good leveller, when too much power/money/assets and over-inflated asset-wealth are in the hands of fewer people. Creates a better entry point for new younger interests, rather than keep greedy older over-leveraged or over-promised special interests protected, when markets have topped out. Forces good business people to adapt and bad businesses to fail, and as in this story, others to sell their liquidated stock cheap on sites they've set up, to new business entrants.

Outrageous fortune

Survivors of the crisis are those that move fast and think creatively

Nov 2nd 2013

This boom in entrepreneurial spirit may be the silver lining to the big, dark economic cloud that still hangs over Greece.

http://www.economist.com/news/business/21588914-survivors-crisis-are-those-move-fast-and-think-creatively-outrageous-fortune

[Venger]

The European Central Bank (ECB) has cut its benchmark interest rate to new record low of 0.25%, down from 0.5%. The move came as a surprise to many analysts.

Recent concerns over low inflation and the weakness of the eurozone economy had led many to suggest that further action from the ECB may be needed, but not until later in the year. Inflation in the eurozone fell to 0.7% in October - its lowest level since January 2010.

Prices in Greece - one of the eurozone members worst hit by the economic crisis - have not risen since July. Some economists are also worried about deflation in Spain. The ECB's target is to keep inflation just below 2% - seen as a healthy level for economic growth.

'Weak economic activity'

"Deflationary risks and the stronger euro seem to have motivated the ECB's move," said Carsten Brzeski, an analyst at ING. "It is obvious that the ECB under president [Mario] Draghi has become much more pro-active than under any of his predecessors."

Speaking at a press conference after the announcement of the cut, Mr Draghi said the bank expected to see "a prolonged period of low inflation", and said the eurozone was seeing "weaker than expected economic activity". "Accordingly, our stance will remain accommodative as long as necessary," he said.

He reiterated a pledge to keep rates low for the foreseeable future as part of the bank's new policy of offering forward guidance alongside its decisions. Rates had been held at 0.5% since May, and before that were cut to 0.75% in July 2012. The cut in the benchmark rate is designed to make it cheaper for banks to borrow from the ECB, with the aim that this will be passed on to businesses taking out loans, boosting the economy. The euro fell sharply against the dollar in response to the decision, dropping more than 1%. A weaker euro may be a help to the eurozone economy by making European goods cheaper abroad, benefiting exporters.

Surprise drop in euro zone inflation shows deflation risk

By Martin Santa

BRUSSELS Tue Jan 7, 2014 6:08am EST

(Reuters) - Euro zone inflation fell in December after a small increase the previous month, increasing the European Central Bank's challenge of avoiding deflation as well as supporting the bloc's recovery.

Consumer price inflation in the 17 countries then sharing the euro stood at 0.8 percent year-on-year in the last month of 2013, compared with 0.9 percent in November, data from the EU's statistics office Eurostat showed on Tuesday.

December's reading takes inflation back to near a four-year-low of 0.7 percent in October.

"Today's figures show that it's too early for the ECB to become complacent about deflation risks, especially in peripheral countries," said Peter Vanden Houte, ING's chief euro zone economist, referring to the bloc's weaker members.

An inflation rate that is well below the ECB's target of close-to-but-below 2 percent carries risks in the longer term because it can deflate wages and demand, depressing the economy.

Reacting to the data, the euro rose to $1.3646 from $1.3618 on speculation the ECB could consider more steps to support the economy.

The October drop in inflation was the first fall below 1 percent since February 2010 and prompted the European Central Bank to cut its key interest rate to a new record low of 0.25 percent in November.

Still, the euro zone is far from the deflation that Japan suffered from the early 1990s.

ECB President Mario Draghi said last week there were no signs of deflation or an urgent need for another rate cut, but added that it was vital to avoid a scenario where inflation gets stuck permanently below one percent and slips into a danger zone for the economy.

continues in full: http://www.reuters.c...EA060BB20140107

Telegraph piece from November, about November's ECB rate cut ; can't see it elsewhere on the thread: http://www.telegraph.co.uk/finance/economics/10434431/ECBs-Draghi-stuns-markets-with-rate-cut-but-deflation-still-looms.html

Apparently prices in Greece are back to the same levels as in 1962. Imagine how good that would be.

It would be so so good. Anything back towards early 2000s, mid 90s would be excellent for UK house prices and rents. Transaction volume would shoot up, loads of upsizers, banks making loads of new mortgage loans.... velocity of finance getting debt on all the homes, helping the economy. Instead of dead money at stupid high values, with so many homes owned outright, and kept inflated to get votes, or for someone's inheritance in the future - bleak economy.

[Venger]

DANGER, DEFLATION!

Yet data out Tuesday also showed core inflation in the EU slowed to a record low of just 0.7 percent in December, fanning fears of deflation ahead of the European Central Bank's policy meeting on Thursday. It was worries about inflation falling too far that led the central bank to cut interest rates in November.

"This month's data will help reinforce expectations that the ECB are ready and willing to take whatever steps they deem necessary to prevent the economy from slipping into deflation," said economists at ANZ in a note to clients. "While we think that the ECB will remain on hold this week, we are expecting a very dovish statement from ECB President Draghi."

http://www.reuters.com/article/2014/01/08/markets-global-idUSL3N0KH4BP20140108

[Venger]

BBC News

15 January 2014

IMF head Christine Lagarde warns of deflation risks

"If inflation is the genie, then deflation is the ogre that must be fought decisively," she said in a speech in Washington.

Earlier, the World Bank said that the global economy was at a "turning point" but "remained vulnerable".

"We see rising risks of deflation, which could prove disastrous for the recovery," Ms Lagarde said at the National Press.

The recovery which prevents bad money and bad investment decisions being liquidated, young/good money picking up assets at lower prices, and protects asset/house values for older investors/owners in so many countries.

Using such language about deflation. You get to this stage of risk of big correction, with the quest for constant inflation.

[Venger]

BBC News 31 March 2014

Eurozone inflation falls to 0.5% in March

Inflation in the euro area fell to 0.5% in March, down from 0.7% in February and its lowest rate since November 2009.

The Eurostat estimate puts the inflation rate well below the European Central Bank target of just below 2%.

The figure is lower than the 0.6% rate expected by analysts.

The lower-than-expected rate may reinforce concerns that the 18-nation eurozone risks a damaging period of deflation.

... IHS Global Insight economist Howard Archer said the fall in the inflation rate was "uncomfortable and unwelcome news" for the ECB.

"If the ECB does eventually act, it will probably include measures aimed at adding liquidity," he added.

Analysts noted the fact that Easter was later than usual had delayed the impact of rising travel and hotel prices and could encourage the ECB to wait before acting.

Citigroup economist Guillaume Menuet added: "There's still a case for easing, but we don't think there's going to be enough agreement within the governing council members to ease on Thursday."

On Friday, figures from Spain showed that prices in the country fell 0.2% in March compared with a year earlier.

Need more expensive train fares and hotel rooms and stuff, to encourage me to travel/holiday/spend/buy.

[zugzwang]

Need more expensive train fares and hotel rooms and stuff, to encourage me to travel/holiday/spend/buy.

Ponziistas discover that the debt deleveraging depression never actually went away.

Yes, it's still 2008...

[Venger]

Ponziistas discover that the debt deleveraging depression never actually went away.

Yes, it's still 2008...

It's ok, because inflation is the genie apparently.

Just get more more liquidity into hands of people who are expert spenders, more debt on the books, to support the positions of existing over-expanded VI who need a certain price point to make their profits/incomes, and support their house prices.

15 January 2014: "We see rising risks of deflation, which could prove disastrous for the recovery," Ms Lagarde said at the National Press. "If inflation is the genie, then deflation is the ogre that must be fought decisively," she said in a speech in Washington.

Edited March 31, 2014 by Venger