Originally Posted by
fusscharles
Okay, so the € (euro)has not sunk down to where europe has become "attractive" again, but i keep hearing they are in recession (they=periphery nations). I expect, and my theory is, there is some deflation in prices of rooms and general travel necessities (cabs, food, etc.) is going on there under our noses. Can anyone validate my conjecture: is europe more attractive than the euro leads everyone to believe?
Im dying to go back there on vacation, but if there is true inflation and a strong currency, im waiting until the currency goes below $1.20/dollar. If it is a 1.30 currency and everything is deflated 10% im in!
Thanks!
Recession does not mean deflation.
Deflation is opposite of inflation.
You can have
- recession and inflation, or even hyperinflation.
- recession and deflation
- stagnation and inflation.
- robust economic growth and inflation.
If money supply is increased beyond what's needed to spur economic growth, or economic growth does not keep pace with the increase in money supply. which is what has been happening in Greece since it joined the Euro Zone, you will have inflation. In a recession, you need to increase money supply to increase liquidity so that businesses can borrow to create economic growth. Consumption (of the increase in money supply) by people, can help an economy, provided goods consumed are produced in the country. If you consume imported goods, (Greece imports 40% of its food and 100% of its oil) increase in money supply will not do w whole lot of good beyond increasing jobs in the sector that services imported goods. If the increase in money supply or stimulus or bail-out, merely goes towards servicing sovereign debt, it might not help the economy at all, unless it helps businesses (or Government, if its a responsible Government) borrow in more in order to kick-start an economy.
In a recession, quantity of goods produced goes down too. Despite the reduction in production, you can still have too much money chasing too few goods- which is inflation-- which is the case in Greece. Deflation will accompany a recession only if money supply decreases faster than quatity of goods produced.