Euro area annual inflation was 1.7% in July 2010, up from 1.4% in June. A year earlier the rate was -0.6%. Monthly inflation was -0.3% in July 2010. EU annual inflation was 2.1% in July 2010, up from 1.9% in June. A year earlier the rate was 0.2%. Monthly inflation was -0.2% in July 2010.
In July 2010, the lowest annual rates were observed in Ireland (-1.2%), Latvia (-0.7%) and Slovakia (1.0%), and the highest in Romania (7.1%), Greece (5.5%) and Hungary (3.6%). Compared with June 2010, annual inflation rose in nineteen Member States, remained stable in one and fell in six.
The lowest 12-month averages up to July 2010 were registered in Ireland (-2.4%), Latvia (-1.8%) and Portugal (0.0%), and the highest in Hungary (5.1%), Romania (4.8%) and Poland (3.3%).
Interest rates are at historic lows for three reasons. First, the recession has dampened investment demand and thus lowered interest rates across the economy. Second, the Central Bank has actively kept interest rates low. Third, investors decided that deposits are the safest place to park their money. All three factors will reverse themselves.
At some point, the economy will recover. When that happens, those seeking home, auto and business loans will be competing with government to borrow from the same limited pool of savings, resulting in higher interest rates. To prevent inflation, the Central Bank will likely pull out the new money they had poured into the economy, and raise interest rates. Finally, at some point investors will move their money back to a stabilized stock market, thus forcing the Treasury to offer higher interest rates to attract buyers.
Accordingly, interest rates are virtually guaranteed to jump over the next few years. Had the government relied more on long-term bonds, it could have locked in affordable interest rates. Instead, the Treasury went for short-term teaser rates, providing temporary savings but exposing the government to higher interest rates when these bonds must be refinanced in the next couple of years.
Basil Venitis notes that central bank's artificial creation of credit is the culprit in the business cycle. As the boom turns into bust, the economy tries to readjust itself into a configuration that conforms to consumer preferences. That is why it is so essential for government to stay entirely out of the adjustment process, because arbitrary government behavior can only delay this necessary and healthy process.
Wages and prices need to be free to fluctuate, so labor and other resources can be swiftly shifted away from bloated, bubble sectors of the economy and into sustainable sectors of the economy where consumers want them. Bailouts obstruct that process by preventing the reallocation of capital into the hands of firms that genuinely cater to consumer demand, and by propping up instead those firms that have deployed resources in ways that do not conform to consumer preferences. Fiscal and monetary stimulus do nothing to address the imbalances in the economy, and indeed only perpetuate them.
The velocity of circulation of money in the economy has plummeted to its lowest level in half a century. Money that people don't spend does not cause inflation. It also does not stimulate the economy. Banks have cut back on lending, despite all the billions of dollars and euros that were dumped into them in the name of stupidus stimulus. Consumers have also cut back on spending. For the first time, more gold is being bought as an investment to be held as a hedge against a currently non-existent inflation than is being bought by the makers of jewelry. There may not be any inflation now, but eventually that money is going to start moving, and so will the inflation.
Basil Venitis asserts the Fourthreichian bank stress tests are a hoax! Fourth Reich(EU) wasted an opportunity by not pushing harder criteria and by leaving important crisis scenarios out of the tests, such as Eurokleptocracy, gigaregulation, Antitrust Armageddon, gigataxation, especially VAT, a real estate crash, the collapse of certain markets, and total defaults of PIGS. The hoodwinking test did not bring any real insights. The whitewashed test criteria prevented what could have been an opportunity to really clean up the banking sector. Stress tests were never expected to show massive capital shortfalls, as banks have also already raised about 300 billion euros since the start of the crisis, which includes about 170 billion euros of government support to 34 banks.
Venitis notes one scenario used in the fake stress test was a drop in the value of Fourthreichian government bonds. The test assumed a 23% drop in troubled Greek bonds relative to their levels at the end of 2009. Five-year German government bonds, on the other hand, dropped just 4% in the scenario. The writedowns, only done on paper, were based on the securities that are already listed in the banks' account books in which all securities that are meant for sale must be listed at their market values. But most government bonds are held in the bank book, meaning they are not intended for sale but will be kept until they mature. Bonds held in the bank book were not included in the test.
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