Wednesday, January 8, 2014

Bob Janjuah explains the 3 delusions

- Delusion no.1 is that these economies will devalue and export there way out of trouble. This seems a nonsense to me as EVERYONE is looking to devalue (a race to nowhere) and EVERYONE is looking to export, but to whom??

- Delusion no.2 is that we can inflate away our debts. This can ONLY work successfully if such a policy of inflation is unanticipated, as otherwise it gets pre-emptively priced into inflation expectations. So it has already failed as AT LEAST half the markets see/expect this as the attempted way out.

- Delusion no.3 is that governments can keep pumping/printing/borrowing, without consequence, and for long enough to hide the private sector deleveraging/deflationary trends. Those limits are pretty much already with us (Greece), or are soon to be with us give or take a few mths (in the UK), or at best give or take a few quarters (in the case of the US). On the basis that private sector weakness is a multi-yr trend, government is NOT gonna be the solution and will become/is now part of the problem as austerity kicks in (Greece 'done', UK in a few mths, then the US later this year).