I rather than define inflation in the most abstract terms that economists like to use like demand outpacing supply, it is extremely necessary to define what resources we want to built by using the tools of money creation (fiscal policy like CoVid relief checks) and backstopping bank liquidity (QE). Every classical economist of the status quo order is scared about increased fiscal (rather than monetary) controls/policy within the economy. Monetary policy first seeks to make sure governments DO NOT create more money, which is an inherently conservative, austerity minded position, aka “starve the beast”, and secondly the interest rates are used to incentivize or deincentivize the availability of bank credit, which in some sense is bank-made money, $10 to every $1 of government issued currency.
Pouring more money into an already incompetent status quo, especially in the sense of climate denialist mainstream economy and also in the sense that it seems to pro life meaningful types of employment beyond extractive, exploitative profit motives. Simply put, fiscal policy can be like gas on a fire, but what are we allowed or able to make with the heat? If not much, then inflation is a real fear. On Fri, Jul 2, 2021 at 11:39 AM patrice riemens <[email protected]> wrote: > Original to: > > https://www.theguardian.com/business/2021/jul/02/1970s-stagflation-2008-debt-crisis-global-economy > > > Conditions are ripe for repeat of 1970s stagflation and 2008 debt crisis > > Warning signs are there for global economy, and central banks will be left > in impossible position > > > > In April, I warned that today’s extremely loose monetary and fiscal > policies, when combined with a number of negative supply shocks, could > result in 1970s-style stagflation (high inflation alongside a recession). > In fact, the risk today is even bigger than it was then. > > After all, debt ratios in advanced economies and most emerging markets > were much lower in the 1970s, which is why stagflation has not been > associated with debt crises historically. If anything, unexpected inflation > in the 1970s wiped out the real value of nominal debts at fixed rates, thus > reducing many advanced economies’ public-debt burdens. > > Conversely, during the 2007-08 financial crisis, high debt ratios (private > and public) caused a severe debt crisis – as housing bubbles burst – but > the ensuing recession led to low inflation, if not outright deflation. > Owing to the credit crunch, there was a macro shock to aggregate demand, > whereas the risks today are on the supply side. > > We are thus left with the worst of both the stagflationary 1970s and the > 2007-10 period. Debt ratios are much higher than in the 1970s, and a mix of > loose economic policies and negative supply shocks threatens to fuel > inflation rather than deflation, setting the stage for the mother of > stagflationary debt crises over the next few years. > > The same loose policies that are feeding asset bubbles will continue to > drive consumer price inflation > > For now, loose monetary and fiscal policies will continue to fuel asset > and credit bubbles, propelling a slow-motion train wreck. The warning signs > are already apparent in today’s high price-to-earnings ratios, low equity > risk premia, inflated housing and tech assets, and the irrational > exuberance surrounding special purpose acquisition companies, the crypto > sector, high-yield corporate debt, collateralised loan obligations, private > equity, meme stocks, and runaway retail day trading. At some point, this > boom will culminate in a Minsky moment (a sudden loss of confidence), and > tighter monetary policies will trigger a bust and crash. > > But in the meantime, the same loose policies that are feeding asset > bubbles will continue to drive consumer price inflation, creating the > conditions for stagflation whenever the next negative supply shocks arrive. > Such shocks could follow from renewed protectionism; demographic ageing in > advanced and emerging economies; immigration restrictions in advanced > economies; the reshoring of manufacturing to high-cost regions; or the > Balkanisation of global supply chains. > > More broadly, the Sino-American decoupling threatens to fragment the > global economy at a time when climate change and the Covid-19 pandemic are > pushing national governments toward deeper self-reliance. Add to this the > impact on production of increasingly frequent cyber-attacks on critical > infrastructure, and the social and political backlash against inequality, > and the recipe for macroeconomic disruption is complete. > > Making matters worse, central banks have effectively lost their > independence because they have been given little choice but to monetise > massive fiscal deficits to forestall a debt crisis. With both public and > private debts having soared, they are in a debt trap. As inflation rises > over the next few years, central banks will face a dilemma. If they start > phasing out unconventional policies and raising policy rates to fight > inflation, they will risk triggering a massive debt crisis and severe > recession; but if they maintain a loose monetary policy, they will risk > double-digit inflation – and deep stagflation when the next negative supply > shocks emerge. > > But even in the second scenario, policymakers would not be able to prevent > a debt crisis. While nominal government fixed-rate debt in advanced > economies can be partly wiped out by unexpected inflation (as happened in > the 1970s), emerging-market debts denominated in foreign currency would not > be. Many of these governments would need to default and restructure their > debts. > > At the same time, private debts in advanced economies would become > unsustainable (as they did after the global financial crisis), and their > spreads relative to safer government bonds would spike, triggering a chain > reaction of defaults. Highly leveraged corporations and their reckless > shadow-bank creditors would be the first to fall, soon followed by indebted > households and the banks that financed them. > > To be sure, real long-term borrowing costs may initially fall if inflation > rises unexpectedly and central banks are still behind the curve. But, over > time, these costs will be pushed up by three factors. First, higher public > and private debts will widen sovereign and private interest-rate spreads. > Second, rising inflation and deepening uncertainty will drive up inflation > risk premia. And, third, a rising misery index – the sum of the inflation > and unemployment rate – eventually will demand a “Volcker moment.” > > When former Fed chair Paul Volcker increased rates to tackle inflation in > 1980-82, the result was a severe double-dip recession in the US and a debt > crisis and lost decade for Latin America. But now that global debt ratios > are almost three times higher than in the early 1970s, any > anti-inflationary policy would lead to a depression rather than a severe > recession. > > Under these conditions, central banks will be damned if they do and damned > if they don’t, and many governments will be semi-insolvent and thus unable > to bail out banks, corporations and households. The doom loop of sovereigns > and banks in the eurozone after the global financial crisis will be > repeated worldwide, sucking in households, corporations and shadow banks as > well. > > As matters stand, this slow-motion train wreck looks unavoidable. The > Fed’s recent pivot from an ultra-dovish to a mostly dovish stance changes > nothing. The Fed has been in a debt trap at least since December 2018, when > a stock- and credit-market crash forced it to reverse its policy tightening > a full year before Covid-19 struck. With inflation rising and > stagflationary shocks looming, it is now even more ensnared. > > So, too, are the European Central Bank, the Bank of Japan and the Bank of > England. The stagflation of the 1970s will soon meet the debt crises of the > post-2008 period. The question is not if but when. > > > (Nouriel Roubini was professor of economics at New York University’s Stern > School of Business. He has worked for the IMF, the US Federal Reserve and > the World Bank. > # distributed via <nettime>: no commercial use without permission > # <nettime> is a moderated mailing list for net criticism, > # collaborative text filtering and cultural politics of the nets > # more info: http://mx.kein.org/mailman/listinfo/nettime-l > # archive: http://www.nettime.org contact: [email protected] > # @nettime_bot tweets mail w/ sender unless #ANON is in Subject: -- *G. Vincent Gaulin* 211 Keese St. Pendleton, SC m. 864-247-8207
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