Liars, and Tigers, and a Bear Market, Oh My!
Board: Macro Economics
Dorothy tumbles end over end, spinning and spinning, heading towards a yellow brick road. She lands right on top of Scarecrow
Dorothy: "Oh Scarecrow, we are back here again, together, after so many years! Now which way do we go?"
Scarecrow points both ways, then at her silver shoes: "We follow your shoes!"
Dorothy: "Oh but Scarecrow, the original wizard of Oz was written based on a period of high unemployment, where a fixed monetary base of gold led to high unemployment of workers by allowing in a deflationary spiral- silver had to be considered a unit of exchange, expanding the monetary base to counteract the deflation. That is what my silver shoes represented, and now, sadly.." she cries.
Scarecrow: "Come along Dorothy. Don't cry."
Dorothy: "But scarecrow, the EU nations have all just signed onto a gold standard, or the equivalent- a fixed monetary base of the Euro. That is going to lead to.."
Toto: "Bark. A deflationary debt spiral?"
Dorothy: "Toto- I didn't know you could talk! But you are correct. Also austerity, and higher and higher unemployment, making a recession. It is a guaranteed recession now Scarecrow."
Scarecrow: "Just tap your shoes together!"
Dorothy: "But I don't have the political power to tap my shoes, I can't force the ECB to print more Euros. In fact, they have just stated.. they have just stated.."
Scarecrow: "What Dorothy?"
Dorothy: "A limited purchase of sovereign bonds.. it not only is not monetary loosening, it is essentially monetary tightening."
Scarecrow: "It can't be all that bad."
Toto: "Bark. The bankers say sovereign default will lead to worldwide financial collapse. Perhaps that is a lie. At least, an inflationary default does seem advisable."
Scarecrow: "Merkel is a tiger- she will never allow for inflation"
Dorothy: Liars, and tigers, and a bear market, oh my!