The European Central Bank is worried about inflation - shouldn't we be too?

A monetary union without fiscal union, combined with the aftermath of a credit splurge and then vicious retrenchment, was always going to create austere conditions and unemployment - the end of which is deflation.

This is the chilling conclusion one might draw from the fact that even the ECB has now got the message and has begun to reinforce its forward guidance that rates will still be at present levels or lower for a considerable period of time. Yet even now we didn't get the Full Monty - a move to negative deposit rates is what the peripheral countries now desperately need. Before they joined the Euro they would have been able to regain some degree of competitiveness via devaluation - now the only way out for them is mass, long-term unemployment, while structural reforms to their labour markets take hold - if they ever do. A cut in the Depo rate would begin to seriously weaken the Euro, replicating the pre-Euro solution for the periphery.

After a shock to the system as large as the credit crisis, perhaps the real surprise is that this has taken so long to become evident; the scale of the inevitable de-leveraging process that was always going to have to take place would classically suggest this outcome, but then we have to add to the mix the fact that the Eurozone (13.5 per cent of global GDP in 2012), is saddled with a massively deflationary economic experiment, in the shape of the Euro.

One has to say the whole thing is becoming painfully reminiscent of the Bank of Japan's failure to take bold steps in the face of the imminent arrival of deflation in the 1990s, despite the yen’s ludicrous strength.  

A monetary union without fiscal union, combined with the aftermath of a credit splurge and then vicious retrenchment, was always going to create austere conditions and unemployment - the end of which is deflation. This is now spreading even to the core. This week's CPI figures in Germany and France will be absolutely key. Japanisation is the real danger for Europe now, and the same could start to be true in the US too, unless we see an uptick in core inflation soon. The core PCE (Personal Consumption Expenditure) deflator - the Fed’s preferred inflation measure - stands at 1.2 per cent year on year.

The establishment survey part of Friday’s US employment reports certainly contained some crumbs of comfort, but I find it hard to believe the balance of views on the FOMC will be sufficiently shifted by one set of figures, or even just by the hopefully untainted report next month, to bring tapering forward to the December meeting. Optimists also latched onto last week’s first reading of Q3 GDP, at +2.8 per cent, as another positive, but the bulk of the surprise came from a large increase in inventories; always a double-edged sword-were inventories climbing because of falling demand right now, or because manufacturers foresaw increased demand in the future? Either way the likely give-back in this quarter means growth is heading for only 1.5 per cent in Q4.

Finally though, Fed politics also mitigate against December tapering. It seems pretty clear that QE is seen as yielding diminishing returns and the monetary tool du jour is now forward guidance (love it, or think it’s dangerous like me), and the Fed would like to strengthen theirs by lowering the employment threshold for rate rises from 6.5 per cent to at least 6.0 per cent, probably 5.5 per cent. This is a normal human reaction to the scare of their lives that the Fed got this summer as 10-year yields exploded from 1.6 per cent to 3.0 per cent, slowing the housing market and dragging higher the shorter term rates that the Fed would have us believe are anchored for years to come. I believe we won’t now see QE without this enhancement of forward guidance.

With a change of Chairman coming up and wholesale changes in Fed voters six weeks after the next Fed meeting, (both Regional President rotations and new Fed Governors), this strengthening of forward guidance will look very suspect if it takes place in December and is just inherited by the "new" FOMC in January. Forward guidance is, by definition, a promise; and one of a very personal nature.

Graffiti covers a fence around the construction site of the new headquarters of the European Central Bank on August 30, 2013 in Frankfurt, Germany. Photograph: Getty Images.

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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Donald Trump vs Barack Obama: How the inauguration speeches compared

We compared the two presidents on trade, foreign affairs and climate change – so you (really, really) don't have to.

After watching Donald Trump's inaugural address, what better way to get rid of the last few dregs of hope than by comparing what he said with Barack Obama's address from 2009? 

Both thanked the previous President, with Trump calling the Obamas "magnificent", and pledged to reform Washington, but the comparison ended there. 

Here is what each of them said: 

On American jobs

Obama:

The state of our economy calls for action, bold and swift.  And we will act, not only to create new jobs, but to lay a new foundation for growth.  We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.  We'll restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost.  We will harness the sun and the winds and the soil to fuel our cars and run our factories.  And we will transform our schools and colleges and universities to meet the demands of a new age.

Trump:

For many decades we've enriched foreign industry at the expense of American industry, subsidized the armies of other countries while allowing for the very sad depletion of our military.

One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.

Obama had a plan for growth. Trump just blames the rest of the world...

On global warming

Obama:

With old friends and former foes, we'll work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet.

Trump:

On the Middle East:

Obama:

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West, know that your people will judge you on what you can build, not what you destroy. 

Trump:

We will re-enforce old alliances and form new ones and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth.

On “greatness”

Obama:

In reaffirming the greatness of our nation we understand that greatness is never a given. It must be earned.

Trump:

America will start winning again, winning like never before.

 

On trade

Obama:

This is the journey we continue today.  We remain the most prosperous, powerful nation on Earth.  Our workers are no less productive than when this crisis began.  Our minds are no less inventive, our goods and services no less needed than they were last week, or last month, or last year.  Our capacity remains undiminished.  

Trump:

We must protect our borders from the ravages of other countries making our product, stealing our companies and destroying our jobs.

Protection will lead to great prosperity and strength. I will fight for you with every breath in my body, and I will never ever let you down.

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland