Posted by: Dirk | May 26, 2010

Inflation scare – the clueless media

Just as an example for the thousands of articles warning of inflation, here are the introducing sentences of an article from the SPIEGEL called Euro-Crisis: Germans fear gigantic government debt (my translation):

Die Sorge um die Stabilität des Euro verunsichert die Deutschen: Einer neuen Erhebung zufolge fürchten immer mehr Bürger, dass die Politiker die Staatsschulden nicht mehr bewältigen können. Die Angst vor einer Inflation ist stark gestiegen, die Kauflaune gesunken.

Worrying about the euro’s stability, Germans are anxious: according to a new survey more citizens fear that the politicians cannot bring public debt under control. Inflation Angst has risen, consumer confidence sunk.

Well, if people are expecting inflation because of mounting government debt there are two things I would expect them to do: 1) shift consumption from the future towards today and 2) charge higher interest rates for German government bonds.

As the Spiegel has noted, consumer confidence has sunk, not risen. So much for the expectations of inflation on part of consumers. In other news (Bloomberg) we find this:

May 25 (Bloomberg) — German 10-year government bonds rose, pushing the yield to the lowest since at least 1989, as stocks fell amid concern that Europe’s debt crisis will hinder the economic recovery.

So, interest rates (or better: yields) on German government bonds are not soaring, no, they are at a historical low! So much for the expectations of inflation by savers.

In the last weeks I have been shaking my head more than once when reading articles by (financial) journalists. Sadly, many of these people have been educated in economics at our universities, so I should complain about the academic system, not about the journalists.

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