Our economies are bloated by QEs, low interests and other stimuli, and the lack of real risk-taking.

Tarps, fiscal deficits, QEs and minimal interest rates, in an economy where regulators have by means of risk-weighted equity requirements de facto prohibited banks to take real risks, like lending to SMEs and entrepreneurs, only to take on false risks, like leveraging too much on what is "safe", like with government debt and residential mortgages, has created a bloated economy full of assets with inflated values... and helped finance the permanence of inefficiencies that should have been long gone.

The economy now needs to fart, urgently, but boy it is going to be embarrassing smelly… and painful!

That deflation is not curable with factory produced inflation but only with the type of sturdy growth that can justify the relative values of all assets. You do not live on existing assets alone.

You cannot grow muscles by staying in bed just eating fats and carbs... you need exercise and proteins... even if "risky" 

Way back I had a feeling this had to come sooner or later. 

PS. Sometimes I feel sort of like a Chance the gardener :-)

But who knows, Mario Draghi and his colleagues might all just be Chauncey Gardiners too :-( 

And what could lead to less inequality: to inflate the value of assets that are already owned or to try to create new assets?

Consumption will be postponed because of deflation? How much truth… how much nonsense?

We so often read of central banker’s being very scared of deflation because the expectation of lower prices would cause consumption to be postponed and therefore economic activity to be reduced. How much truth is there in this… and how much nonsense?

I guess no one in the upper 1% would postpone one iota of their demands because of this… nor is deflation much likely to affect the products and services they demand.

I guess that all who have unsatisfied needs, by far the largest proportion of the population, will just appreciate the possibility of satisfying more of these needs, and also not postpone one cent of their aggregate demand.

And I guess that of all those who could perhaps benefit from some purchase postponement, but who suffer the instant-gratification virus, will also not postpone satisfying any demands.

And so we come down to trying to estimate how much of the population have satisfied their current demands sufficiently; and who at the same time are sufficiently disciplined not give to in to instant gratification, and who therefore would save and net postpone some purchases.

And the savings resulting from those postponements, where would these go?

To sum up... I have no idea!

But I do know that inflation... is a tax that primarily hurts the poor... and so in a world full of Pikettys, it is sort of strange hearing central banker's wish for it... just as hearing central bankers who one normally think of in terms of being very thrifty fellows... wanting to rob value from their children's piggy banks. 

PS. Europe, should oil reach US$ 150 a barrel so as to allow ECB to celebrate having reached its inflation target?

Yes Mme. Lagarde. It matters much where banks are going, and they’re being directed in the wrong direction.

Yes Mme. Lagarde. It matters much where banks are going, and they’re heading the wrong way.

Christine Lagarde Managing Director, International Monetary Fund in “The IMF at 70: Making the Right Choices—Yesterday, Today, and Tomorrow” during The IMF/World Bank Annual Meetings, Washington, D.C. October 10, 2014, states: “It matters where we want to go in order to decide which way we go.”

Indeed it matters. And that is why I ask Christine Lagarde to use her influence to ask bank regulators: where do they want our banks to go.

I say this because in all their regulations there is not on single word about the destiny of the banks, in terms of the purpose of our banks. 

And that is of course why they have allowed themselves to impose on banks “credit-risk weighted capital requirements for banks”, which introduces a sissy silly risk aversion in the banking system and which completely distorts the allocation of bank credit to the real economy.

When Mme. Lagarde presents to us a choice between stability and fragility, that is a perfect opportunity to remind all of you that the search for stability can itself produce that stiffness, brittleness and lack of flexibility, that can lead to real monstrous fragility.

When Mme. Lagarde presents to us a choice between acceleration and stagnation that is not really a choice, since the lack of acceleration, moving forward, taking risks, will make the economy stall and fall, sooner or later.

And finally when Mme. Lagarde presents to us the choice between solidarity and seclusion, I would just note that, though there is a saying that goes “better alone than in bad company”, whenever you build a wall, you cannot be absolutely sure you end up on the right side of it.

IMF, and World Bank you have an important and urgent role to perform in holding bank regulators accountable for what they have done and are doing… please do not shy away from it.

And also never forget that secular stagnation, deflation, mediocre economy, unemployment, underemployment, managed depression and all similar obnoxious creatures, are all direct descendants of risk aversion.

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926