Two more checks in the deflation box

Check one. When banks are charging their depositors to hold their money, this is strongly indicative of deflation:

Just three months ago, Mario Draghi (President of the European Central Bank) embarked on his own Quixotic folly by taking certain interest rates into NEGATIVE territory. Draghi convinced himself that he was saving Europe from disaster. And like Don Quixote, everyone else has had to pay the price for his delusions.

On November 1st, the first European bank has passed along these negative interest rates to its retail customers. So if you maintain a balance of more than 500,000 euros at Deutsche Skatbank of Germany, you now have the privilege of paying 0.25% per year… to the bank.

We’ve already seen this at the institutional level: commercial banks in Europe are paying the ECB negative interest on certain balances.And large investors are paying European governments negative interest on certain bonds.

Check two: When debtor nations are finding it harder and harder to pay interest on their outstanding loans despite historically low interest rates, this is also indicative of deflation.  Ambrose Evans-Pritchard describes the battle between the ECB and the Bundesbank over continuing the European version of quantitative easing:

The North is competitive. The South is 20pc overvalued, caught in a debt-deflation vice. Data from the IMF show that Germany’s net foreign credit position (NIIP) has risen from 34pc to 48pc of GDP since 2009, Holland’s from 17pc to 46pc. The net debtors are sinking into deeper trouble, France from -9pc to -17pc, Italy from -27pc to -30pc and Spain from -94pc to -98pc. Claims that Spain is safely out of the woods ignore this festering problem. 

We have been seeing some inflationary artifacts during the last five years of credit disinflation, but that is the result of the massive credit money pumping. According to mainstream economic theory, there should have been 10x or more inflation, but instead, all those efforts to monetarily refuel the global economy have uselessly run off, like gasoline poured over a stone. There has been some asset inflation, as can be seen in the stock market, but when the crash comes – and it will come – that will put a conclusive end to the inflation/deflation debate.