" I have yet to meet a central bank that doesn't inflate once it gets a whiff of deflationary pressures"
This was a comment by player whereaminow in ETFsRule's blog about gold. It looks correct overall, but it got me thinking and prompted me to write this reply:
"One case where it is happening, to a degree, is European Central Bank, which printed relatively little, and the reason is very interesting. Since Germany and France are controlling shareholders, the eurobureaucrats feel that PIGS economies are expendable. However, any threat of PIGS defaulting will send the Euro sharply down, which is just what controlling shareholders want. By NOT printing enough money, the ECB can drive the Euro lower than it could drive it by printing too much of it, while confining the austerity pain to the colonies and positioning the metropolis as a safe haven.
Maybe we too should accept Mexico into a dollar union, let it absorb as much debt as it can carry, and then shut the printing press off, getting a cheap dollar AND a low inflation? What do you think? "
Indeed, I am interested to know your opinions. Perhaps it is after all possible to have our cake and eat it too if we can find some other sucker who will not have his cake and will not eat it either? I am for now putting aside the question if cheaper dollar is actually a good thing (Geithner sure thinks it is), and I am also putting aside the ethical aspect of it (since ethics has never been a problem for the US government anyway). Just the pragmatic aspect: do you think this trick could possibly work?