Where next for Europe?
We’ve been waiting for nearly a decade for the credit bubble and its consequences to play out. We’ve waited, and dipped in and out of various markets, through the commodity supercycle, the bull market in gold, various global property bubbles, the credit crunch itself and through the endless (and not over yet) rounds of quantitative easing (QE).
Now we’re watching the slow implosion of the eurozone, thinking about what happens if Greece goes, and wondering if Europe will get deflation or inflation first. Right now, the seemingly obvious answer is deflation, that being the natural consequence of a broken banking system and a system that allows governments to run up debt, but won’t allow their national banks to print up the payment of those debts.
But it’s worth remembering that inflation and deflation aren’t opposites. Instead, they are examples of the same thing (monetary instability) and both have as their opposites the same thing (monetary stability).
Jonathan Ruffer of Ruffer describes (more on him here) this well. Look at it, he said last year (see Independent-investor.com for the full interview), like a car driving along a straight road. A tyre blows out. That’s the credit crunch. The car lurches to the left. That’s deflation. The driver has the wheel, but with his tyre gone he has to end up in the left or the right ditch (deflation or inflation). Which is it?
• Read the full editor’s letter here: Where next for Europe?