Detlev Schlichter's Blog

Draghi’s volte-face two weeks ago has emboldened the Keynesian majority in the media and in economic research departments. It has injected new life into their relentless campaign for yet more state intervention in the Eurozone economy.

What is Super Mario up to? First, he gave an unexpectedly dovish speech at the Jackson Hole conference, rather ungallantly upstaging the host, Ms Yellen, who was widely anticipated to be the most noteworthy speaker at the gathering (talking about the labor market, her favorite subject).

It is now six years since the collapse of Lehman Brothers, and considering that the US economy has officially been in recovery for the past five years, that equity indexes have put in new all-time highs, and that credit markets are once again ebullient to the point of carelessness...

The data was not really surprising and neither was the response from the commentariat. After a run of weak reports from Germany over recent months, last week’s release of GDP data for the eurozone confirmed that the economy had been flatlining in the second quarter.

Investors and speculators face some profound challenges today: How to deal with politicized markets, continuously “guided” by central bankers and regulators?

After months of whinging and whining by the international commentariat, and of relentlessly redefining what any sensible person would call “price stability” as a grave economic problem, the ECB has caved in, as expected, and yesterday announced further stimulus measures.

The European Central Bank is under pressure. Inflation in the eurozone is at 0.7 percent but as Ben Bernanke supposedly stated, we are never sure if we measure these things correctly. So by all we know, the eurozone may already be in mild deflation.

There is apparently a new economic danger out there. It is called “very low inflation” and the eurozone is evidently at great risk of succumbing to this menace. “A long period of low inflation — or outright deflation, when prices fall persistently...

I gave a speech on this topic at the Libertarian Alliance in March. A link to the video recording of that speech is here. The following essay covers similar ground but is not identical with the speech.

“Who can print money, will print money” is how my friend Patrick Barron put it succinctly the other day. This adage is worth remembering particularly for those periods when central bankers occasionally take the foot off the gas, either because they genuinely believe they solved the problem, or because they want to make a show of appearing careful and measured.