Inflation has finally arrived.
The combined banging out money from the GFC, then parlayed by Covid, might be finally coming home to roost.
The traditional view has been that throwing money out creates inflation, and we've now had a decade of that, except the inflation has been assets rather than consumer products, so the idiotically-named "headline inflation" has shown nothing for the entire 12 years since quantitative easing became QE.
Now, we have what may well be the perfect storm for inflationary pressure:
Unlimited money
Assets at prices where leverage is low
Close to zero interest paid on deposits
Supply chain problems/lack of shipping (and containers)
Labour shortage worldwide
OPEC finally getting its **** together
Closing fossil fuel & nuclear power plants
The key this time is the labour shortage. Up to now, employers have been able to keep a lid on wage demands, but unions are shaking off their fossil status now they've realised employers can't just go and hire different people.
Economists are split on whether the inflation - already running at 5% in lots of countries - is temporary or long-term.
Central banks are going to struggle with the issue, because printing more money won't fix it, but would exacerbate it nicely. Raising interest rates is a double-edged sword - it's guaranteed to push wage demands higher, leading to more inflation.
I'd love to know which way it's going, because if you pick it right there's a fortune to be made on the bond market.
The combined banging out money from the GFC, then parlayed by Covid, might be finally coming home to roost.
The traditional view has been that throwing money out creates inflation, and we've now had a decade of that, except the inflation has been assets rather than consumer products, so the idiotically-named "headline inflation" has shown nothing for the entire 12 years since quantitative easing became QE.
Now, we have what may well be the perfect storm for inflationary pressure:
Unlimited money
Assets at prices where leverage is low
Close to zero interest paid on deposits
Supply chain problems/lack of shipping (and containers)
Labour shortage worldwide
OPEC finally getting its **** together
Closing fossil fuel & nuclear power plants
The key this time is the labour shortage. Up to now, employers have been able to keep a lid on wage demands, but unions are shaking off their fossil status now they've realised employers can't just go and hire different people.
Economists are split on whether the inflation - already running at 5% in lots of countries - is temporary or long-term.
Central banks are going to struggle with the issue, because printing more money won't fix it, but would exacerbate it nicely. Raising interest rates is a double-edged sword - it's guaranteed to push wage demands higher, leading to more inflation.
I'd love to know which way it's going, because if you pick it right there's a fortune to be made on the bond market.
via International Skeptics Forum https://ift.tt/3BVzxKQ
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