Austerity vs. Reflation – Financial Updates for April 2012

Austerity vs. Reflation – Financial Updates for April 2012


Each month, our team puts together a series of updates that we share with clients and close associates. For the end of April, we spent time researching the outlook on European markets and what affect that might have as we look ahead in the global economy.

As we close out the month of April, we shut the door on a month that brought Europe’s issues back to the front page and caused increased volatility relative to what we saw in the first quarter.  Moving into May, Europe’s issues will likely remain influential on markets’ short-term movements and we will also see some possible political shifts in some major Euro countries, most specifically France.

What we are also seeing in Europe is a shift in opinion on how to deal with the continued crisis. Since the onset of Europe’s troubles, the view within the Euro zone has been to get out of the troubles via austerity plans. The focus for countries was on cutting budgets and not necessarily on growing the economy.

With some possible political changes, the austerity stance seems to be weakening and the Euro zone is starting to talk more about the need for growth rather than austerity.

To many in Europe, this seems to be a monumental shift, but rather it is more common sense than monumental. We have talked about this concept before in regards to dealing with our own domestic issues. It is the idea of reflation and is the path that Fed chairman Ben Bernanke has been moving towards since the crisis began here. It is a matter of implementing policies that spur growth first, reflating the economy. Then as a separate task, you can then look to take austerity type measures. This is in contrary to what Europe has tried to do, which has been to try and implement austerity while a country is already very sick and deleveraging. This has led to some countries falling back into a recession.

So how does this affect your investment portfolio? Do you have investments that are affected by the Euro zone or do you see an adverse affect related to your portfolio investments in the U.S.?

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