Steen Jakob­sen, chief econ­o­mist at Saxo Bank in Den­mark has a few thoughts via email I would like to share.

Steen writes ...

The Ger­man “near miss” failed auc­tion yes­ter­day has set off sev­eral new devel­op­ments and pres­sures – This is a major thing clearly, and some media even spec­u­late it could change the mighty Bun­des­banks’ per­cep­tion of reality.

Close to home, Ger­many now trades ABOVE Den­mark on 10 year gov­ern­ment debt by 10 basis points! How­ever, there is rea­son to believe this more a func­tion of the illiq­uid mar­kets than an endorse­ment of the Dan­ish econ­omy, where the fis­cal imbal­ances con­tin­ues to expand neg­a­tively (Unlike Sweden!)

Spread dif­fer­ence 10 year Den­mark minus 10 year Germany

It has also increased the pres­sure from France to get the ECB more involved – I fail to see link between the Ger­man auc­tion and this, but never the less the French polit­i­cal machine is always firmly behind the con­cept of “Dirigism” and in today’s meet­ing between Merkel, Sarkozy and Monti the topic surely will be touched again.

It’s impor­tant in his­toric con­text to remem­ber that the only true role a cen­tral has is to … print money – why else have it?

I remain com­mit­ted to my Chap­ter 11 con­cept as one of the few ways to break this deadlock.

Safe trav­els,
Steen

For a dis­cus­sion of the "Chap­ter 11" con­cept, please see Per­fect Storm the Most Likely Sce­nario; Is Europe Set to Declare a Chap­ter 11 in Early 2012?

Steen is cor­rect regard­ing the only true role of cen­tral banks. It is pre­cisely why they they should be elim­i­nated. Far from being "infla­tion fight­ers" they are the very source of inflation.

More cor­rectly: Frac­tional Reserve Lend­ing and Cen­tral Bank Print­ing do not "cause" infla­tion, they "are" inflation.

Defla­tion is the destruc­tion of credit and debt from the pre­ced­ing boom.

Mike "Mish" Shed­lock
http://globaleconomicanalysis.blogspot.com

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