Prices are rising in Europe as in America. Bread is up 12% in Germany over the last 12 months. Butter has gone up 45%. Milk 25%.
By the time the average European has finished his breakfast, he is feeling a little queasy. And by the time he has driven to work, after filling his gas tank with fuel that costs about four times as much as it does in the United States, he is sick.
The Europeans have been caught by the dollar too. As America emitted more pieces of green paper, foreign banks had to emit their own colored paper to keep up with it. Otherwise, their currencies would have gone up against the dollar…making their economies less competitive on the world market. It was a cycle that appeared virtuous for quite a while. More and more money in circulation had the effect of boosting up share prices…and house prices. People thought they were better off.
But now, assets are falling in price…consumer products are going up. Now people are getting the kind of inflation that they don’t like…and now they want someone to do something about it. Opinion polls show that purchasing power is one of the main complaints of voters. Politicians are talking about solutions. And central bankers are under pressure to raise rates, not lower them.
At the same time, the pressures from deflation are mounting too. A spokesman for Price Waterhouse Coopers says the subprime debt problem has still not fully expressed itself.
And “the credit crunch gets worse,” writes Floyd Norris in the New York Times .
Bankruptcy filings by companies with leveraged loans outstanding are running more than four times last year’s rate.
Markets and Money