Tuesday, August 16, 2011

Eurozone Economy on the Edge of Major Downturn

A tight money policy by the European Central Bank is causing the eurozone to go into an "unexpected" recession.

 In Germany, the second-quarter gross domestic product growth number of a mere 0.1%, was significantly lower than the 0.5% Keynesian economists had been predicting. German GDP expanded 1.3% in the first quarter.

And the Markit/BME purchasing managers’ index for the German manufacturing sector fell 2.6 points in July to 52 points, its lowest level since October 2009.

There was zero growth registered by France in the second quarter and  the euro area’s overall GDP rose only 0.2% in the second quarter from the preceding three months, after growing 0.8% in the first quarter, Eurostat said Tuesday. Growth in Spain and Italy was 0.2% and 0.3%, respectively.

A non-money growth policy is the best policy, however, this policy, following a period of money printing results in the downturn of the boom-bust cycle as the economy adjusts to a non-money manipulated economy. Central banks rarely allow this correction to play out and return to money printing. Keep an eye on the ECB if it returns to money printing, we may very well be near the first near-global price inflation, as the U.S. money supply is already in near super-growth mode.


  1. Bob,

    I'm familiar with ABCT but I still don't quite understand why you say with such conviction that the US economy is about to go into another boom phase. Isn't it possible that the current money printing/stimulus may simply keep the previous bubble from fully popping and instead of booming, the US economy experiences prolonged stagflation that ultimately leads to currency collapse?

    Does money printing *always* lead to another boom, or is it possible that the currency collapses before another boom occurs?

  2. The ECB may already be changing course. Evidence is here: http://english.economicpolicyjournal.com/2011/08/is-ecb-starting-to-massively-print.html

  3. The reader above me asked a very good question. I eagerly await the answer.

  4. 2% growth is considered overheated in Europe. 0.2% is actually good in their socialist eyes.

  5. To my understanding, the "boom" phase will be less pronounced than 2001-2007, but will keep supports of stock market and commodity prices higher than normal. Some areas (tech, Silicon Valley housing, govt spending, some financials) will get upticks outside the norm, but the general economy will "feel" like it is improving. The stock market has apparently already priced in QE3, so delay in that area could cause short term drops.

    Too bad the hangover might be fatal this time.

    Plus, extraneous events (Iran/Israel, Euro trouble, China) could induce unexpected shocks.

    Is this (somewhat) accurate, Bob?

    Dale Fitz