Courtesy of Mish.
Telegraph writer Ambrose Evans-Pritchard is back at it. In arguably his worst article ever, Pritchard complains France is Looking Straight Down the Barrel of a Deflation Shock.
Pritchard bemoans the horrors of falling prices and says “There is a technical solution to this. It is called QE. The European Central Bank can lift the entire EMU system off the reefs by launching a monetary blitz to meet its own M3 growth target of 4.5pc.“
Pritchard ignores the fact that equity prices are back in bubble land. He ignores the fact that QE did not bring inflation to Japan. He ignores the fact that consumers desperately need falling prices. He ignores the fact that falling consumer prices do not stop consumers from buying anything.
Pritchard complains “French President François Hollande must now pay the price for kowtowing to the contraction polices of the eurozone.“
Pritchard knows full well France is bound by eurozone policies. The only way France cannot “kowtow to the contraction polices of the eurozone” is if France leaves the eurozone. But Pritchard never mentions that. Instead he whines about falling prices.
One Centrally Bad Idea
Pritchard clings to the centrally bad idea that falling consumer prices will cause consumers to perpetually delay purchases.
In the real world, people have to eat. They have to buy gasoline for their cars. They have to buy clothes when they wear out. They have to heat their homes.
Those are relatively inelastic demands.
But there is also no evidence consumers will hold off for long on discretionary spending either. Every Christmas, shoppers line up for bargains. People continue to upgrade TVs, computers, monitors as they wear out, or simply because prices are lower and quality is up since they last bought.
In other words, people buy when bargains are many and stop buying when bargains are few.
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