World View: Eurozone Plummets into Deflation

This morning's key headlines from

  • Eurozone plummets into deflation
  • Measles spread feared in Central African Republic

Eurozone plummets into deflation

Inflation versus deflation (Don Stott, Silver Bear Cafe)
Inflation versus deflation (Don Stott, Silver Bear Cafe)

The eurozone consumer price index (CPI) inflation rate fell to 0.8% in December, continuing a long string of steadily decreasing month after month inflation rate reports. The "core inflation rate," which excludes food and energy and so is less volatile, fell to 0.7%. The following table shows the core inflation rate reported in each of several months in the last year:

'   Dec 2012    1.5%
'   Jul 2013    1.1%
'   Aug         1.1%
'   Sep         1.0%
'   Oct         0.8%
'   Nov         0.9%
'   Dec 2013    0.7%

This has been a fairly dramatic trend and demonstrates that deflation is becoming firmly lodged in the European economy.

For over ten years, mainstream economists have been predicting inflation or hyperinflation because central banks have had near-zero interest rates and have been pumping trillions of "printed" dollars into the economy. For ten years, Generational Dynamics has been predicting a deflationary spiral. Once again, generational theory is right, and mainstream economists are wrong. Mainstream economists didn't predict and can't explain the tech bubble of the 1990s, the real estate and credit bubble of the 2000s, or the financial crisis of 2007. 

It was perfectly obvious that there was a huge real estate bubble in the 2004-2007 time frame, as I wrote about many times in that period. Mainstream economists, however, didn't even recognize the bubble until around 2009, when they started saying, "Oh yeah, by the way, there was a real estate bubble in 2006. Let's not do that again." Are you kidding me? Mainstream economists have no clue what's going on, and they have no clue what will happen next year, except to assume that the same thing that happened last year will happen next year, and you don't need mainstream economists to make that "prediction."

The Wall Street stock market bubble has gotten so large that even some mainstream financial advisers are predicting a crash soon. (See, for example, Estimating the Risk of a Market Crash, John P. Hussman Ph.D.) According to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock valuations) on Friday (January 3) morning was 18.88, which is astronomical by historic standards, indicating that stocks are far overpriced, and the stock market bubble is worse than ever.

As Europe spirals into deflation, it's worth duly noting that Bank of England Governor Mark Carney is expressing concern about China's credit bubble. The Chinese credit system has grown to $24 trillion from $9 trillion in late 2008, equivalent to adding the entire US commercial banking system.

Generational Dynamics predicts a continued deflationary spiral, and a massive world financial crisis, as a crisis in one country or market creates a chain reaction that affects the entire world. Reuters and Telegraph (London) and Telegraph (Dec 2013)

Measles spread feared in Central African Republic

Measles has broken out at the airport in the capital, Bengui, of the Central African Republic. There are about 100,000 people there, mostly Christians fleeing Muslim Seleka militia attacks, squeezed like sardines into the area. Seleka militias have been going from house to house, killing young men. However, Christian groups are preparing a violent revenge against the Muslims, leading to fears of a huge regional war.

A month ago, there were only a few thousand camped out near the airport. The 100,000 people there now are among the 513,000 total Bangui citizens who have been driven from their homes. Across the country, about 2.2 million people have been made homeless, about half the total population.

Last March's coup by a Seleka leader unleashed a wave of looting, rapes, and massacres by its fighters that degenerated into clashes with the Christian militias. It's become murder of neighbor against neighbor, like the Rwanda genocide in 1994, or the Bosnian massacre in 1995.

From the point of view of Generational Dynamics, Central African Republic is deep into a generational crisis era, and this conflict is rapidly deteriorating into a full-fledged generational crisis war between Muslims and Christians. There are 1,600 French and 6,000 African Union "peacekeepers" who are supposed to stop the slaughter, but a generational crisis war is an elemental force of nature that can sometimes be briefly delayed, but cannot be stopped until it reaches an explosive climax.

BBC and Guardian (Nigeria) and AP 

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