No, this is not an old news article from the 1930s, it’s from today’s Financial Times: A political backlash against fiscal austerity left mainstream French and Dutch politicians struggling on Monday to shore up support as a key economic indicator highlighted the eurozone’s slide into deeper recession. François Hollande’s first round victory in the French […]

The ECB likes low inflation.  So does Germany.  That has led many people to wrongly assume that ECB policy is somehow pro-German. In the long run the trend rate of inflation makes no difference; money is super-neutral.  Greece and Italy are no better or worse off with a 2% trend rate of inflation, or an […]

Although there has been a lot of good discussion about the political difficulties involved in solving the euro crisis, almost everyone seems to be missing two important points, or at least not paying enough attention to these points: 1.  While the Greek crisis and the threat of European recession are related, they are two distinct […]

Here’s Statsguy from the comment section of an earlier post: I would add only this: The Fed (and ECB) are doing tremendous STRUCTURAL damage by over-targeting (rear-looking) headline inflation. That doesn’t mean I don’t think headline inflation is important (it’s quite real, particularly if you’re in the lower income strata), but it’s counterproductive. Why? Essentially, […]

Quasi-monetarists and Keynesians both warned the ECB that it was making a mistake by raising interest rates in response to commodity inflation, even as NGDP expectations were falling.  Indeed, we claimed they were making precisely the same mistake as they made in July 2008, when the ECB raised rates in response to high oil prices, […]