Thursday 30 January 2014

BRICS Up Against The Wall

As the Turkish Lira sets slowly in the west ...

Well, not so slowly.  And investor sentiment turns on a sixpence (strange - they always know these things can happen ...)  - I am aware of one big private equity power plant deal that has foundered because of this very recent currency volatility: and the Turks need power plants - lots of them.  These are the kind of crises-in-confidence that spiral downhill quickly.

Ambrose in the DTel paints an ugly picture:
World risks deflationary shock as BRICS puncture credit bubbles As matters stand, the next recession will push the Western economic system over the edge ... Eurostat data show that Italy, Spain, Holland, Portugal, Greece, Estonia, Slovenia, Slovakia, Latvia, as well as euro-pegged Denmark, Hungary, Bulgaria and Lithuania have all been in outright deflation since May, once tax rises are stripped out. Underlying prices have been dropping in Poland and the Czech Republic since July, and France since August.  
Wow:  here we go again ?  One could imagine quite a flight of capital (to the extent people can get it out of places like China and Russia in times of crisis) and we all know where that ends up.  UK house price bubble, anyone ?

And a holiday in wonderful Istanbul ?  By-passing Taksim square, perhaps.  



Ryan said...

Interesting that the IMF and the EU have imposed measures in Spain and Greece that have led to persistent unemployment of >25%.

Logically, in order for Greece and Spain to have any chance of paying off their debts at all, they must aim for 100% use of productive capacity. Clearly a system aimed at paying off debt that reduces capacity utilisation to <75% is a failed system. It is simple logic that the IMF/EU strategy is a failed strategy.

And yet they persist with it?

"An escalating commitment to a failed course of action" writ large. It can only end one way...

Blue Eyes said...

Business as usual in the UK then - overseas deflation holding down UK consumer prices and pushing up the relative price of housing and other assets. What a joy to have our own currency!

Quick question: why have the Euroleaders not been working on a change for the last few years to enable the ECB to respond? I realise that Germany is unrelenting in matters of money printing but I'm sure some weasel treaty wording could be found - it usually is!

A SA finance minister(?) squarely blamed UK and US resurgence for their currency problems. The world seems to need us and the Merkins to keep printing. If deflation is upon us I'm sure we can oblige.

hovis said...

Ryan, you are right but I think you are seeing a design feature, not a bug in the system.

Might makes you think all sort of nonsensical thoughts like the idea isn't to pay off the debts at all.

Besides I'm sure they wouldn't want to change a "proven" method used throughout the rest of the world for 40 years or more.

Ryan said...

@Hovis: I was thinking yesterday that maybe they don't want the money back. Maybe they just want to kick the Greeks really hard.

After Mark Carney spoke to Salmond I was thinking about London being much richer than the rest of the UK because we are in a currency union with it, and all the profits of various companies end up in London even if the work is done in other cities, and these profits are not forced to be returned by the need to exchange those currencies back to the city of origin.

You can see the same is happening between Germany and the rest of the EU. Germany companies aquire smaller companies outside Germany. The HQs are in Stuttgart, Munich etc. all the profit made elsewhere floods towards Germany, never to be seen again, in a continuous conveyor of wealth....

Red Eyes said...

Looks like the blog should be renamed. Marx@Work has a nice ring to it.