Home » Chart Of The Day, Most Recent Stories

CHART OF THE DAY: THE RETURN OF DEFLATION IN SPAIN

16 May 2010 by Cullen Roche 3 Comments

Spanish Citizen: Yes, may I please have a bit of fiscal austerity with that dose of deflation?  Actually, on second thought, make that fiscal austerity a double, we’re looking for an extra long case of deflation and depression.

Spanish Government: But of course!  Coming right up!

Spanish CPI

* Courtesy of reader Sean

Disclosures - Unless otherwise noted, authors have no positions in any securities mentioned and readers should never consider this to be investment advice. Always consult your financial advisor before acting on any ideas. Comments Guideline - Readers who denigrate authors or other readers will be banned without warning. This site does not tolerate any sort of reader abuse. The goal of this site is to create an environment that is conducive to learning and better understanding of the monetary system and the investment world. We expect readers to behave maturely and responsibly. We welcome and encourage intense and intelligent discourse, but the site adheres to a strict 1 strike policy. While it is your right to speak freely, it is not your right to behave childishly. Above all else, please enjoy the site. It is intended to be used as an educational tool and we hope the intelligent and mature debate will further that purpose. We hope readers will make an effort to respect that goal. Comments with excessive linking or foul language will be moderated before posting.
Comments
  • lostmycap

    Aren’t they supposed to have deflation? They can’t devalue their own currency since they don’t have their own currency (they are tied to the Euro). They need some way to compensate for the lower productivity of their labor compared to other countries so that they can compete. If their currency can’t drop, then their wages have to drop. But wages are “sticky” – it takes longer to drop wages than to drop the value of a currency – which can happen overnight. Isn’t this what HAS TO happen?

    05/16/2010 at 10:28 AM
    • Cullen Roche TPC

      Are they really supposed to have deflation? Or do they have deflation due to poor government policy, a flawed currency system and monetary policy that is not sovereign? I think any central banker would agree that a little bit of inflation is far better than a little bit of deflation. In Spain’s case – the leaders have no option but to deflate. Their approach to monetary policy is akin to a country whose approach to crime is – ah, tell the police to stay home and let the people hash it out. It will all work out in the end….

      05/16/2010 at 2:07 PM
      • lostmycap

        They are having deflation for a couple of reasons:

        1. The same as everyone else, they have to compete with China and its ultra low wages and fixed currency.

        2. They are suffering the after effects of the run-up in value of the Euro when all the “smart” folks on the planet thought that the Euro would replace the U.S. dollar as the world’s reserve currency.

        05/16/2010 at 2:29 PM