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The Bernank has already clearly communicated that isn't how he rolls. ECB is a different story as they seem to still want to maintain a cloud of uncertainty and ambiguity. Draghi still wants to the play the game of "I didn't mean that" or whatever, ...

I think Draghi and Bernanke are in fundamentally different positions, and the economies in the USA and the Eurozone may end up having fundamentally different outcomes as a result.

Bernanke follows the traditional Keynesian playbook, and will print money and debase the currency as needed to avoid deflation. His doctoral research was on the deflationary period following the Great Depression, and his Helicopter Ben moniker reflects his statements that he would do whatever necessary to avoid repeating that period.

Draghi probably believes many of the same things, but does not have the constitutional authority to print money, whether it might be needed or not. The Germans, who seem to be calling the shots in Europe, have made it clear that under no circumstances would they allow for the debasement of the currency, torpedos be damned. Their nightmare is a repetition of the pre-war inflationary period, and compared to that, they can live with the idea of a little deflation.

So Europe is going down a very different road from the USA, with austerity as far as the eye can see, and as countries cut back on their (over)spending, I think Europe is likely to see years of Japan-style deflation, while the USA debases its currency, no matter who is at the helm, and eventually gets the inflation that comes with that.

Some possible investing consequences:

1. Fairfax's anti-inflation bet might work out, at least for the European part of it, even if the USA part turns out to be a dud.

2. Gold's current high price is largely the result of fears of currency debasement, but that might not happen in the eurozone, which is actually a bigger economic force than the USA.

3. Fixed income looks terrible in the USA, but it might work out well in Europe, if we get deflation there. Conversely, debt will be more of a burden for European companies if they have deflation and a strong currency.

4. Anything heavily dependent on government spending in Europe may be in for a world of pain; I'm thinking of German engineering companies, for instance. All the more so if they have a lot of debt (see #3). The overall European economy may do fine, as spending shifts from the public to the private sector, but infrastructure projects will be hard to justify if governments are trying to pay down the debt

Regards, DTM
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