'Years of reckless monetary inflation, bypassing consumer prices as it stoked asset price inflation and Bubbles, had finally come to a conclusion. No longer could central bankers simply fixate on the financial markets and lean on unconventional monetary stimulus, while disregarding inflation risk.''It had all been a grand illusion: the Fed and free “money” generating a permanent plateau of prosperity. The year saw inflationism’s inescapable scourge of wealth destruction and misery begin to be revealed.
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..the larger story of 2022 was the ongoing lending boom thriving outside the markets. Moreover, with household and corporate spending bolstered by huge cash reserves, the greater U.S. economy – and inflation – remained surprisingly immune to Fed tightening measures.
FT headline: “Year in a Word: Inflation.” Too simplistic. This year’s key dynamic was a momentous shift in inflation dynamics, from years of asset market-centric price inflation to broad-based consumer, commodities and employment pricing pressures. Inflation dynamics are complex. But a confluence of developments conspired to alter the global inflation backdrop.
Trillions of pandemic monetary inflation were a tinderbox waiting to ignite .. The combination of climate-related food supply issues and a whirlwind of renewable investment also underpinned the new inflationary environment.
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Despite Fed tightening measures, the inflationary boom ran unabated – fueled by rapid Credit growth, huge cash balances, and a newfound inflationary mindset. Borrowing and spending is habitual, borrowing that spurs the Credit growth necessary to sustain rising prices. Inflated gas and food prices directly feed into huge growth in credit card balances.Why not buy now when prices are surely only going higher? Besides, jobs are plentiful and wages are growing.
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Years of reckless monetary inflation, bypassing consumer prices as it stoked asset price inflation and Bubbles, had finally come to a conclusion. No longer could central bankers simply fixate on the financial markets and lean on unconventional monetary stimulus, while disregarding inflation risk.
Deteriorating U.S. and China relations are emblematic of unfolding new cycle dynamics. Xi Jinping has achieved absolute power, as confidence in Beijing policymaking hits lows. A mishandling of “zero-Covid,” and then a lack of preparation for today’s Covid free-for-all. This follows years of economic mismanagement. A historic apartment Bubble burst this year, while a deeply maladjusted “Bubble Economy” was beset by intense pressures.
Three percent 2022 GDP growth will uncharacteristically fall below Beijing’s 5% bogey. Most troubling, it required another year of double-digit system Credit growth to muster the weakest Chinese economic performance in decades. Annual growth in Aggregate Financing will likely surpass 2020’s record $4.6 TN. As of September 30th, Chinese Bank Assets had added another $5.0 TN y-o-y to a record $54.2 TN (3-yr growth 31%). Most recent data show China’s M2 “money supply” is expanding at a 12.4% rate.
Similar to the U.S., China’s Credit Bubble inflated in the face of collapsing speculative Bubbles. Massive Beijing stimulus and bank lending held financial crisis and economic depression at bay.
Tokyo also did its utmost to hold back crisis dynamics. It’s worth contemplating the extent to which Japan’s ongoing negative rates and Bank of Japan monetization bolstered global liquidity throughout 2022.
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“Pension funds and other 'non-bank' financial firms have more than $80 trillion of hidden, off-balance sheet dollar debt in FX swaps, the Bank for International Settlements (BIS) said,” read a December 4th Reuters article .. Looking ahead, we’re justified for fearing that the next rounds of global de-risking/deleveraging now smolders. It was an extraordinary year and portentous start to the new cycle.'
- Doug Noland,
2022 Year in Review, December 30, 2022
'FRANKFURT, Dec 24 (Reuters) - The European Central Bank must be prepared to take the heat and raise interest rates further, including by more than the market expects, if that is needed to bring down inflation, ECB policymaker Isabel Schnabel said in an interview published on Saturday.'
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ECB must be ready to take the heat and raise rates more, Schnabel says, December 24, 2022
'This time around, however, core measures are at a record high of 5 per cent and are forecast by ECB economists to stay above its 2 per cent target even by 2025. Persistence of price pressures is now Knot’s “main concern”.''In the eurozone, consumer price inflation hit a record high of 10.6 per cent in the year to October — more than five times the ECB’s 2 per cent target. In the Netherlands, inflation has been higher still, peaking at 17.1 per cent in September.
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This time around, however, core measures are at a record high of 5 per cent and are forecast by ECB economists to stay above its 2 per cent target even by 2025. Persistence of price pressures is now Knot’s “main concern”.
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The Dutch central bank recently warned that it expected €9bn of losses over the next four years because rising rates mean it will pay far more on bank deposits than it earns from its bond holdings. Knot said it was “uncomfortable that the central bank is taking the hit”, though he estimated it could “plug the hole” without a bailout by withholding dividend payments to the government for “years, if not decades”.'
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Leading ECB policymaker hints at sharp climb to peak rates, December 26, 2022
Context(Global Stagflation) - '..the highest inflation in four decades that they’re not close to winning..'(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'