I’m just doing a drop of thinking out loud here.  Feel free to correct me if I make any mistakes.

Deflation = Recession = BAD.  This is where Ireland is now, and thousands of Irish families are falling into an ever increasing spiral of debt.

Inflation = OK.

Too much inflation = BAD.

Am I right so far?

OK.  Supposing I am, I will continue my musings.

Inflation can be controlled by interest rates.  Too much inflation – raise interest rates – brakes are applied to the economy.

Raising interest rated during deflation is a disaster.  It sucks more money out of the economy and makes matters far worse.

Am I doing all right?  I know this isn’t David McWilliams stuff, but I’m doing my best.

Ireland is still in recession.  Germany, France and a couple of others are beginning to experience inflation.  So what happens next?

Do they raise interest rates to help Germany and France, and thereby force Ireland further into recession leading to debt default?

Or do they keep interest rates low to help Ireland and allow inflation to cause problems fro the Big Boys?

I think we know the answer to that one.

Of course another way to control recession or inflation is to revalue a local currency, but that is out of the question, as there is only one currency.

So the bottom line is that one of the following three is royally fucked –

  • Europe
  • The Euro
  • Ireland

Answers on a postcard please.

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Thinking out loud — 7 Comments

  1. This is of little or no consolation, but Ireland is merely on the bleeding edge. The rest of the world will follow on shortly.

  2. It’s the sort of thinking that should have filled the election campaign.  McWilliams has argued for sometime that we can only survive by returning to the Punt; it would immediately plummet in value and find a level at which Ireland was competitive.  Stay as we are and we’re trapped for generations.

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