Europe should learn from Japan that as far as
unemployment is concerned QE will help, but, deflation may persist long... The
rate of inflation tells that there is a downward-bias... which either might be
a demand problem, because unemployment is high, but, again, it may also depend
on the eagerness of firms to hire because they have unsold inventories, or,
means, oversupply, a supply-side-problem... Inflation tells the true story...
But, when the QE will start, firms will expect higher demand and they will,
with the help of QE – labour is cheap, capital is cheap, demand more with
reduction in the unemployment-rate... But, more supply when already there is a
glut will keep on reinforcing lower-price expectation among the agents, they
will delay consumer-spending till QE is over and firms fear-rate hike, again US
is a good example... Therefore, if somehow firms start fearing (actually expect)
that interest-rates will, now, go up soon, they will resume spending, but,
since higher rates also affect the public-debt, the European central bank is in
no mood to hurt the austerity-drive, because that would increase the burden on
the government (i think)... on the public, too... QE will put the economy, when
interest-rates are rock-bottom, in the famous Keynesian-liquidity-trap because
of people’s expectation, they will post-pone spending... Even, now, we can not
deny that Europe is in the trap because, again, interest –rates are at their institutional
minimum since a long-time...
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