Arun Motianey, who works for Nouriel Roubini’s RGE Monitor as fixed income strategist, believes the world economy could soon ‘fold in on itself’, due to a peculiar problem whereby central banks in developed nations no longer know how to create inflation.It seems like the days of trying to avoid excessive inflation are long gone:
“Financial markets have become intolerant about governments acting as a source of final demand in the developed market,” he said. “We are seeing this most dramatically in the European sovereign debt crisis that is now mutating into a European bank crisis.”
“If we slide into deflation – the likely fate of the developed market – a Japan-style outcome will become inevitable,” he said.
“In Japan, the BoJ has lost the ability to create inflation and is condemned to deflation. Central banks may now need to talk about the necessity of inflation…before it is too late. [Because already it looks like they lost their ability to create inflation as well, -TMG]”
Sorry, but this sounds like a call to pump the economy at all costs, and could be one half of the puzzle whereby Nouriel appears to want ‘stimulus in the front and austerity in the rear.’