Archive for March, 2015

The euro is quickly becoming worthless. The below link shows a Euro valued at 1.05 USD on March 14th 2015. The value is lower than any time in the previous 4 years, even as the euro crisis was in what we are now told was its worst period of chaos(Source 1: https://www.google.at/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=1+EUR+in+USd).

This crude yet accurate Google Finance chart shows anyone who can read that the euro has not fallen below 1.20 USD since at least 2011. Now what this means is that until the end of 2014 the euro was worth 20% more than the dollar. Now just a number of months in 2015, it happens to be more or less parity, as in it’s now more or less equally as worthless as the World’s main reserve currency.

A quick Google brings us to source 2 (http://ec.europa.eu/economy_finance/publications/qr_euro_area/2014/pdf/qrea2_section_2_en.pdf) which is a report by the European Commission measuring inflation over the last number of years(2015 figures not yet being available). Inflation has been falling as shown on page one of the report which states it fell from 2.7% in 2011 to 0.6% on average for the first half of 2014. However there has still been positive inflation, that is to say although prices are not rising as fast, they are still rising marginally or in plain English staying more or less the same at 0.6% aside from the very unorthodox oil price falls in late 2014, early 2015, which may be an externality that actually causes negative price levels, i.e. real and harsh drops in the price of everyday goods and services.

The first thing I learnt in a macroeconomics course in early 2010 was that the level of price movement being located around 0% or between 0%-1% indicates a dead economy. Prices need to go up or they need to go down to indicate either a vibrant or a really sick economy(as in prices not rising quite as fast does not mean deflation in its’ truest sense). An economy with little to no price movement in either direction is an economy that’s dead on its feet.

This is not an altogether unknown phenomenon but it is a relatively unheard of one. The most accurate economic term for Europe at present would be stagflation, except that stagflation is not what is actually happening, but rather Stagnation. Yet this is on a completely sectional level, whereby the economy itself is stagnating (while inflating on paper but standing still or even shrinking despite relative price levels when things like debt and trade imbalances like unsustainable deficits/surpluses and various false accounting tricks like including or excluding the shadow economy are taken or even not taken into account).

As mentioned in source 1 above though this is a paradox considering the currency has collapsed by about 40% in the last four years and by about 15% alone in the last several months to date-What this means to me as a worker is if overall prices are not actually falling, and the currency is falling dramatically in value, then stagnating price levels will make people feel like prices are actually rising even as companies try more and more to convince us they are actually cutting prices, yet we feel the opposite effect in our back pocket, in our monthly bills and when we go shopping every week. If stagnation is what is actually happening day to day price wise, the currency is collapsing as a consequence of policy, and people feel ripped off and poorer because their worthless incomes  cannot afford already expensive goods/services/rents/mortgages etc. we have a sort of price stagnation-income value collapse-effective inflation paradox. It is as though the time value of money, how much money is worth today as opposed to tomorrow, is being deliberately accelerated by some invisible hand in some arseways fashion to make us all poorer.

This means our wages, profits, savings(if we have any left) are all increasingly worthless despite no real drop or rise in prices that would either mean A. In the case of deflation and internal devaluation of incomes, Less income or B. Less PPP(ability to buy) in the case of inflation.

If everybody’s income is increasingly worthless yet economic activity remains the same, (under a guise of  main Thoroughfare sales which tell us deflation is going on when in reality as the report above shows, the rate of inflation has merely come down to be almost insignificant) what is keeping the economy afloat? Possibly increased exports. Possibly debt. Possibly a combination of both. Possibly accounting tricks. Who knows, but whatever it is it can’t be good nor sustainable.

All we know for sure is that the euro is being printed to death yet while the currency collapses, and the value of incomes relative to this are as collapsing on paper as well, prices are staying more or less the same.

This means in effect, despite appearing to lose PPP(ability to buy) due to the collapse in value of our incomes courtesy of Godfather Draghi and pals in Frankfurt, and with prices not really falling, our incomes stay the same and we pay more for everything. Stagnation of all economic activity and most related indicators with some weird arsed de facto inflation.

This might actually sound like it makes sense except it doesn’t. The currency being printed so much ought to mean inflation with rising incomes/profits as a result of rising exports and economic activity to offset their falling value. Or so we are told. Yet it doesn’t as prices remained the same more or less throughout 2014 and everything indicates this will continue as the policy continues. So printing money only enriches those who already have lots of money and to whom the value of money is irrelevant-this is not rocket science and is no new discovery, but its manifestation is monstrously different from in similar monetary crises in the past, and poses in many ways a new economic equation, if indeed it isn’t a deliberate move by the powers that be to transfer wealth.

The question then becomes has the ECB got a vested interest, ideological or otherwise, in maintaining current economic activity levels while the currency collapses for the man on the street, even if it means while the ECB can boast it has fended off both deflation and inflation for the moment, the rest of us are poorer as a result as we feel what to us seems like back pocket or arseways inflation?

Other scarier questions worth thinking about are does the ECB see Great depression era unemployment, youth unemployment and income inequality in many constituent euro zone countries as a price worth paying?

Or scarier still, is this, and the many other realities for everyday European workers and SME’s, the intention of the policy itself? 

What advantage can there be to an increasingly centralised superstate to maintain economic stagnation by slowly collapsing its own currency, while maintaining a broad policy of forcing European workers to compete ferociously for ever more worthless incomes? How long before SME’s around Europe collapse as workers stop spending altogether or rather become incomeless trying to afford prices that cannot really be cut further while in effect they are rising for most people?

This leaves open the possibility that the only way this stagnatory crisis/paradox will change is if it gets worse by some sort of hyperdeflation-hyperinflation paradox as companies collapse under the weight of trying to appease more or less incomeless customers by selling stuff for next to nothing in a worthless currency, effectively crashing what’s left of the European economy.

Workers meanwhile will likely have incomes collapsing so fast in value that the ensuing and inevitable hyperdeflation-hyperinflation paradox will mean while companies collapsing would be trying to cut prices, workers would become effectively incomeless trying to afford them. Companies may equally then decide to raise their prices when the price cuts fail, leading to further economic stagnation and further effective inflation for workers and customers generally.

God knows what the societal fallout of even some of this will mean.


Read Full Post »