Tuesday, October 18, 2011

The Rhythm of the Euro Crisis

Paul Krugman spots it, but apparently doesn't realize how you can trade it. Krugman's comment will look very, very familiar to EPJ Daily Alert readers:
There has been a rhythm to the euro crisis: again and again, investors start to realize how bad things look, and spreads rise; then policy makers put together some sort of response, which produces a partial (but only partial) return of confidence, until it becomes clear just how inadequate that response was; then return to step one.
Naturally, Krugman goes on to claim the solution to the crisis should include more inflation:
A real rescue for the euro would have to involve open-ended financing for fundamentally solvent governments subject to the risk of self-fulfilling panic, plus a much more expansionary monetary policy and, almost surely, a higher inflation target.
Krugman is likely to get his inflation, once Mario Draghi takes over at the ECB, but given that US price inflation at the producer level came in at 6.9%, Krugman has to be totally clueless about the global inflation he is calling for.

1 comment:

  1. In Spain price inflation is over 4%. I dont understand people saying that the ECB response to the crisis has been too weak.