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Killing banks softly – Deflation is coming!

One of my favorite charts is showing the decoupling of the long-term risk-free interest rate in the U.S. versus the one in Europe (Graph 1). Until about half a year ago, rates moved in lockstep โ€“ then suddenly, U.S. rates pushed higher, while German Bond yields remained low. What happened was that the US dodged the bullet of deflation after the Fedโ€™s massive quantitative easing program finally having gained traction. U.S. employment is picking up again and economic growth is moving higher. However, Europe, for the better part, remains plagued by mass-unemployment and low growth, with the economy on the brink of deflation.

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