So as I promised to you I would try to explain in my point of vuew those differences between US and EU.malleni wrote: ...That is in my point of view and of course - using the same sources as you (or anybody on forum) could use i.e. the Net - absolutely wrong "conclusion" you made.Samir wrote:For instance, you concluding that EU may see deflation, but US will see hyperinflation, when the conditions in both areas are similar.
The "conditions" between EU and US are so different that it actually "search" a new topic, but I promise you - I explain (certainly, in my point of view) on the "Financial topics".
Actually I already tried in short on the previous discussion, but this time would be more in detail:
1. ECB vs FED mandate
ECB has NO mandate to bail out any of the countries or banks (as the meter of facts)... Simply - the Maastricht Treaty as base for the European Union prohibits the "stimulus injections" by purchasing the government debt of the eurozone's member states.
http://www.eurotreaties.com/maastrichtext.html
in short:
http://en.wikipedia.org/wiki/Maastricht_Treaty
So... ECB, in difference to FED has just one mandate according this treaty - to fight inflation.
There were hard fight in PARIS, May 7:
http://www.guardian.co.uk/business/feedarticle/8513677
You can find in this article some information about quantitative easing (i.e. money printing) which happened last months in EU.
Apparently FED has no such restrictions.
2. Money printing i.e. buying of Treasuries ECB vs. FED
Obviously that was very difficult to find a "minimal consensus on " between member states on this isue.
This minimal consensus consider: "the bank cut its key interest rate by 25 basis points to 1.0 percent and said it would for the first time buy 60 billion euros in covered bonds.
Until now - ECB did not start to buy any of this bonds and in mean time very strong disagreement from Germany become even stronger...
" The ECB's security purchases will amount to just 0.6 percent of the euro zone's Gross Domestic Product, compared with 9 percent in Britain and 12 percent in the United States..."
But even with so small amount as 0.6% of GDP - the resistance is huge...Even from political side:
- Merkel critical of central banks
http://www.bostonherald.com/news/intern ... 7&srvc=rss
On the other side FED (US) has already bought 430 billion mortgage backed-securities and $123 billion treasuries.... (for now!)
3. Exit strategy ECB vs FED
"... inflation hawks want the ECB to agree on an exit strategy from monetary easing even before starting asset purchases ."
Obviously poor ECB President Jean-Claude Trichet - must think even about it.
Mr. Bernanke has no such problem... Simply, the US (FED) has no exit strategy.
4. Difference in economy Eu vs US
The large parts of EU (especially Germany) but even France (and Austria ) are still very productive and making real goods. The danger existed couple years ago that Germany copied "US model" and would outsource everything - but fortunately this bad trend is broken and for example Germany is still one of the biggist exporter of high quality goods.
US on the other side not only outsourced almost everything and transformed its economy in a stupid "debt based consumer spending economy".
You can only imagine where will the impact of State securities can make more damage...
On US economy, of course.
5. Organizational problem
ECB in difference to FED must search for "a minimal consensus" of ALL member states.
This automatically implied a big problem to make a decision which at least one country strongly - dislikes.
In this case Germany - since they have very fresh picture about Wiemar Germany in 1930-ties.
FED has much less bureaucracy and easy way to make any decision they want... Congress or Senate are not any kind of problem since FED need not to explain them anything to them.
Somebody put this video here and perhaps in case you did not see it:
http://www.youtube.com/watch?v=PXlxBeAv ... r_embedded
Anyway, not everything is bad in US.
It looks like now Obama administration decided to "check" little bit more what FED did... (finally!)http://www.bloomberg.com/apps/news?pid= ... refer=news
BUT to avoid this kind of disgrace (Somebody put this video here and perhaps in case you did not see it:)
http://www.youtube.com/watch?v=PXlxBeAv ... r_embedded
FED decided to prevent it and hire a professional lobbyist:
http://www.bloomberg.com/apps/news?pid= ... M&refer=us
6. State finances, debt, budget deficit, trade deficit with China...
It was already quite much of this material here too, but in short:
- yes, some member states of EU (Spain, Ireland, Greece for example) will suffering quite much next couple years. To be honest even other EU members are prepared to suffer. As said too - not only that they are prepared on it - they do not want (can not!) to implement "money printing" neither. Those countries were fiscally reckless and are now burdened by huge amount of debt. They want to print away their problems but Germany will never allowed it on "FED way".
- In difference to US the EU HAS already developed social system net for all citizens as well as medical care for everybody! With other words - EU member can only try to prepare citizens on "impact" and try to make it - soft.
- deficit with China is low in comparison with US which opening EU more possibilities.
On the other side huge (never decreasing!) US trade deficit with China - dragging US just deeply down. It is impossible burden for both countries, but for me is it quite obvious what will happen.
Namely - Each dollar China earn in US is transformed in fresh printed Yuan. Without trade deficit (and dollar peg) - nothing will happened!
Since enormous trade deficit with China (about 40 billions/ month!) - China accumulated enormous dollar reserves with time...
On the other side, Chinese government (Central bank) is printing more money to "fill up" this difference.
While China's ability to keep accumulating US reserves is endless, its ability to keep its money supply under control is not.
We already here discusses a possibility of hyperinflation in China.... It looks now that at least inflation is underway there:
http://www.chinadaily.com.cn/bizchina/2 ... 960254.htm
http://news.xinhuanet.com/english/2009- ... 466512.htm
http://www.chinadaily.com.cn/bizchina/2 ... 960103.htm
http://news.xinhuanet.com/english/2009- ... 391213.htm
http://www.chinadaily.com.cn/bizchina/2 ... 950156.htm
You can imagine what China regime will do in situation "out of control" inflation to choose:
1. to save the dollar or
2. to save themselves?
As conclusion:
This is (in my point of view), besides "destruction of confidence" in dollar - a main reason for high possibility of strong inflation in US (and perhaps even dollar destruction)
On the other side you could understand that ECB and EU have little possibility to inflate... (even less than US had in 1930ties)... That is the main reason to believe that near future of EU is strong - deflation.