SUK3 Part3 Before and After Summary Henry

            BEFORE:

This article by Ambrose Evans-Pitchard represents the deflation crisis in Europe.

Due to the monetary contraction policy implemented in Britain after Seven Years War and the US agrarian revolt, Europe is plunged into economic depression.

With the 300% GDP debt deflation becomes lethal and Eurozone risks to face “the Japan syndrome”. It turned out that debt stabilizing by increasing the primary budget surplus (as it was done in Italy) caused unemployment rates going up. Thus, the debt rate keeps rising in Italy, Spain and Portugal as an expected result of “denominator effect”.

Moreover, the private debt shows the sign of the same vicious dynamic. Companies have only added to their debt volumes proving the Japanese-style deflation to be a disaster for real assets.

Therefore, the private debt ratios are rising steadily in Europe while America is deleveraging rapidly.

Eventually there is the only possible solution, according to the author: accept the deflation’s drifting up with rising wages in Germany. As a result, the private loans are shrinking at 2% rate and economy is recovering gradually.

That sounds counterintuitive but Germany, being an anti-inflation taskmaster is soon to face the risk of deflation itself. Fortunately, the perspective is not really dangerous.

AFTER:

This article by Ambrose Evans-Pitchard, published in the Daily Telegraph (23 Oct 2013) represents the deflation crisis in Europe.

The author analyses the reasons of a deep economic depression in Europe.

With the 300% GDP debt deflation is becoming lethal and Eurozone is facing “the Japan syndrome”. It turned out that debt stabilizing by increasing the primary budget surplus (as it was done in Italy) caused unemployment rates going up tremendously. Thus, the debt rate keeps rising in Italy, Spain and Portugal as an expected result of the “denominator effect”.

Moreover, the private debt shows signs of the same vicious dynamic. Actually, companies have only added to their debt volumes proving the Japanese-style deflation to be a disaster for real assets. Therefore, the private debt ratios are rising steadily in Europe while America is deleveraging rapidly.

Eventually there is the only possible solution, according to the Evans-Pritchard: accept the deflation’s drifting up with rising wages in Germany. As a result, the private loans are shrinking at 2% and the economy is recovering gradually.

That sounds counterintuitive but Germany, being an anti-inflation taskmaster is soon to face the risk of deflation itself. Fortunately, the perspective is not really dangerous.

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