We highly recommend The Deflation Dilemma (page 18) and A Winding Path to
Inflation (page 84) of the current Economist. The second article is particularly
enlightening because it shows how ineffective a policy aimed at creating
inflation will be because the bond maturity profile of most industrialized
countries is short. Over half of U.S. government debt and 40% in Germany and
France roll over within the next three years and so an overt policy to inflate away
the massive public debts will be self-defeating if the bond vigilantes demand a
higher premium upon refinancing time. Besides, an inflation-is-always-around-
the-corner culture still permeates most central banks: the Bank of Canada
hiking, the Fed district banks clamouring for a rate hike, the tightening moves
this year by India, Brazil and China, as well as the refusal on the part of the ECB
to go beyond shifting the composition of its balance sheet and actually expand it
in a classic quantitative-easing style.
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