Deflation Hits Europe

Draghi is running out of options:

Large parts of the eurozone are slipping deeper into a deflationary trap despite negative interest rates and one trillion euros of quantitative easing by the European Central Bank, leaving the currency bloc with no safety buffer when the next global recession hits.

The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle.

Mario Draghi, the ECB’s president, said there are limits to monetary policy and called on the rest of the eurozone to act “much more decisively” to lift growth, with targeted spending on infrastructure. “It is abundantly clear that Draghi is played out and we’re in the terminal phase of QE. The eurozone needs a quantum leap in the nature of policy and it has to come from fiscal policy,” said sovereign bond strategist Nicholas Spiro.

Mr Draghi dashed hopes for an expansion of the ECB’s monthly €80bn (£60bn) programme of bond purchases, and offered no guidance on whether the scheme would be extended after it expires in March 2017. There was not a discussion on the subject.

This has the disturbing feeling that Draghi may be giving up. There is a possibility that the elites may bring everything down at once, to try and destabilize a Trump regime, and prevent him from acting on as many fronts as he would like. If there is a major economic apocalypse, the elites may think Trump will have to deal with that for four years, forcing the wall, and everything else, onto the back burner long enough to make him look like a liar in 2020.

It is also possible they are thinking of crashing things to produce an emergency that would allow the seizure and centralization of power in leftist hands, for stability’s sake, just prior to the political resurgence of the European right.

Everyone knows it is approaching. I have little doubt the elites would rather see it land on an anti-establishment candidate like Trump, rather than one of their candidates, to say nothing of how badly they fear the resurgent right at this moment in history.

I would take a protectionary stance for at least the first six months of Trump’s Presidency, until he has had enough time to enact some of his economic agenda to support the economy.