In a deflationary scenario is it correct that the longer I hold on to money the more it will buy?
Does it make sense to put any funds I don't see myself needing in the next 5 or 10 years into a very long term deposit, even at the current pitiful rates?
If Eurozone deflation occurs and lasts for several years
I'd have concerns for the euro.
I'd prefer to keep my money mobile and forego the current measly returns on term deposits
Why would deflation occur?
And what then is going to be your alternative. How are you going to grow your wealth? How are you going to ensure that your savings at least keep up with inflation - because that is far more likely than an other outcome...
Just another thought -- with the euro at nearly 1.40 to the US dollar, I've considered whether it would be sensible to convert money to dollars or dollar-denominated assets now in the expectation of the ECB acting to weaken the euro (which has been as low as $1.25 in the last two years). Does anyone know how the average punter could achieve this? Is it as simple as buying US shares? (I don't dabble in any of this sort of stuff, but plan to learn about it sometime).
You are talking about a country that has run a massive trade deficit for over 15 years and a projected debt level of about $21 trillion by year end... What would it take for their currency to appreciate??? Or what would the ECB need to do in order to devalue the Euro against the Dollar to a level that you would benefit from???
To try and put it into perspective, we have the Franc pegged to the Euro for the past while... but to do so the SNB has had to hose up Euro bonds to such an extent that it now holds bonds equivalent to the national deficits of the 7 biggest Euroland nations!
Endless possibilities spring to mind -- the markets turn on Ireland and Portugal and they end up back in bailout programmes; Greece needs a third bailout; the upcoming stress tests show up large numbers of Eurozone banks for the busted flush they are; the European electorates return a large number of Eurosceptic MEPS which shakes confidence in the institutions; peripheral countries facing austerity begin to see their future as outside the Eurozone; France fails to operate within the strictures of Euro budgetary controls and its government falls; the German public tire of their perception of paying for other countries' extravagance or support for anti-deflationary measures is lacking.
If not a single one of those things happens, I would consider it a minor miracle. "Those who say the European economy is recovering are smoking something" ... it's not the ravings of a Eurosceptic doom monger, but the chief economist of Citigroup quoted in the Financial Times. And as the same FT article observes, it's no longer just an economic question, but one of whether monetary union is politically sustainable.
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