QE in Europe

The dollar rose against major rivals yesterday and investors now wait for employment data later today. The Euro fell yesterday after ECB`s President Mario Draghi said the bank has discussed QE at the last meeting.

The ECB also made no change to interest rate or monetary policy, leaving its key lending rate at 0,25%. Draghi said they would use unconventional measures to fight falling inflation. The mechanics of a hypothetical bond-buying program weren`t hashed out, he said.

The target for inflation rate in Europe is just under 2% in the medium term. Inflation should pick up in April because of the Easter holiday. If Draghi is right, they will probably not do something in May, so the first real opportunity for some action is in June.

Mario Draghi and ECB hope the Easter Bunny will bring an uptick in inflation in April! I hope so too. Usually we see a volatility around service prices in the months around Easter. Draghi expect the inflation to be low in 2015, and push back toward levels closer to 2% toward the end of 2016.

We saw what happened to Japan in 1989. Nikkei topped out on December 29, 1989, during the peak of the Japanese asset price bubble. The ultra-day high was 38,957,44. It grow sixfold during the decade, and lost nearly all these gains.

On March 10, 2009, Nikkei closed at 7,054,98. That is 81,9% below its peak in 1989. Take a look at the chart below. Japan has printed so much money, but have never recovered. The value of the stocks is declining, and Japan`s public debt will be 242% of GDP in 2014.

Nikkei 225

(Chart: Nikkei Index)

Japan`s debt-to-GDP ratio is higher than any country in Europe and more than twice the OECD average. OECD expect Japan`s gross general government debt-to-GDP ration will increase to 231% in 2014.

How is it in the PIIGS country`s? Greece: 166%, Italy: 140%, Ireland: 123%, Portugal: 139% and Spain: 91%. The U.S national debt is now: $17,565,900,000,000. Take a look at this link: http://www.usdebtclock.org/

So, what are you doing if your debt is higher than your income? Paying the debt by another debt? No way! Debt is like drugs. You need more and more and more, and at the end, it will go terribly wrong. Japan had deflation for about 15 years.

Nonfarm Payrolls and Unemployment rate will be reported later on today. Millions are unemployed and this cannot continue. Mark Twain once said: Ā«The lack of money is the root of all evilĀ».

U.S is not Japan. U.S is not half the way either, but will the debt clock stop in the future? Tighter Fed policy will boost economy, according to UBS AG. The expectation for rising rates may prove helpful. This is positive thoughts.

Reports today:

08:30 a.m EST Nonfarm Payrolls
08:30 a.m EST Unemployment Rate

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

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