Snip from Pimco
Paul A. McCulley
Managing Director
December 16, 2004
McCulley@pimco.com
Very long article
Includes a discussion on SS
I like this discussion on Japan vs the ECB
Mish
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In the fullness of time (my way of saying the long-term), the currently-emerging countries must receive the hand-off. That’s the way the world works in the fullness of time. After all, America was once an emerging country!
The tricky thing is that time ain’t yet full. You are right, of course, that Euroland, at least so-called Old Europe, does not have the right stuff. It’s got many of the same demographic challenges as Japan, as well as the anti-demand pain of falling real wages for the young, as cradle-to-grave socialist policies, including employment policies, give way to the reality of global capitalist competition.
What is more, Europe is shackled with decidedly un-Keynesian aggregate demand policies, led by inflation nuttery at the ECB.
In this regard, Japan is a lot better off than Euroland, in that the BOJ is an enlightened reflationist, committed to printing Yen – including for the purpose of buying dollars – with no limit until the inflation dog finally comes home. In contrast, the ECB specializes in preaching the joys of deflationary pain and regrettably practices what it preaches, on its own score by refusing to print up Euros to sell against dollars, so as to temper deflationary appreciation in the Euro and one-step removed, in advocating that fiscal policymakers pursue pro-cyclical tightening in a deflationary lacuna.
And if it weren’t so sad, I would laugh at the ECB’s latest self-tied knot in its Calvinist shorts: Headline inflation is above the ECB’s 2% target, rendering the ECB unwilling to ease (intervening against the appreciating Euro and/or cutting short rates), but the primary reason headline inflation is above the ECB’s target is administrated price hikes, as fiscal authorities put up taxes to try to appease the ECB’s call for fealty to the Growth and Stability Pact, which is fundamentally flawed in that it does not cyclically-adjust deficit structures.
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