'I contemplate how the world would be these days had not trillions of monetary inflation (i.e. U.S. current account deficits, central bank QE, fiscal deficits) created massive international reserve holdings for both China and Russia. I ponder the scope and duration of China’s Bubble inflation without the endless fuel of loose U.S. finance and Trillions of trade deficits..
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Once inflation dynamics become firmly embedded, a return to stability becomes extremely difficult .. I certainly have my doubts that consumer inflation will conveniently return to previous dynamics .. I expect California to illuminate a fundamental Bubble maxim: inflation may appear the great wealth creator during the boom, but when Bubbles burst the true scope of wealth destruction is revealed. California has plenty of company. Bursting Japanese and Chinese Bubbles, in particular, will expose epic inflated perceived wealth, mal-investment and wealth destruction.''Archaic perhaps, but I am an impassioned proponent of sound money – and have been for a long time. It’s vital – fundamental. The Austrian School of Economics heavily influences my analytical framework. I focus first on Credit inflation – the expansion of new financial claims. This new purchasing power has varied inflationary effects – including consumer and producer price inflation, asset price inflation and Bubbles, over/mal-investment, trade and current account deficits…
Prolonged periods of excessive Credit growth ensure Bubbles (i.e. Credit, asset, speculative and investment) and progressively destabilizing Monetary Disorder. Inflation is insidious, pernicious and poorly understood. Policy and economic circles will continue to debate “r-star” (the so-called “natural rate” of interest). Others will waste time debating the appropriate inflation target rate. Two or 3% doesn't matter at this point. Decades of damage have been wrought to financial, market and economic structures.
We’re now three decades into history’s greatest Credit Bubble, which, not by accident, coincided with radical monetary management experimentation. I often refer to the “Terminal Phase” of Bubble excess, with systemic risks rising exponentially as the cycle comes to its fateful conclusion. That these dynamics have unfolded on an unprecedented global scale only makes the backdrop more perilous.
The consequences of decades of unsound money are coming home to roost. Our nation is hopelessly divided in an increasingly decoupled world. Predictably, inflation and Bubbles are sowing inequality, insecurity, hostility and conflict – at home and abroad. Trust in critical institutions continues to wane.
The costs associated with this epic policy failure will be enormous – possibly catastrophic. There are no quick fixes. Markets are dreaming if they actually believe inflation will soothingly return to the previous cycle’s relative quiescence. The ongoing toll on society will be tragic – the triple trouble of destabilizing inflation, bursting Bubbles and disorienting monetary disorder. And since this historic Credit Bubble and inflations have been global phenomena, geopolitical hardship could prove even more consequential.
I contemplate how the world would be these days had not trillions of monetary inflation (i.e. U.S. current account deficits, central bank QE, fiscal deficits) created massive international reserve holdings for both China and Russia. I ponder the scope and duration of China’s Bubble inflation without the endless fuel of loose U.S. finance and Trillions of trade deficits. It may seem crazy to many, but I see a direct link between Trillions of QE, years of zero rates – runaway inflationist monetary policies – and China’s perilous Bubble and the rise of the aspiring heroic autocrat, Xi Jinping. And I don’t see Putin invading Ukraine without his $500 billion international reserve stockpile, inflated global energy prices, and a powerful (enemy of my enemy) “partner without limits” with global superpower and new world order ambitions.
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Once inflation dynamics become firmly embedded, a return to stability becomes extremely difficult. This is the case for inflationary monetary policy, such as the Bank of Japan’s years of reckless QE and YCC. It’s also true for asset inflation and speculative Bubbles, and certainly with consumer and producer price inflation.
Suddenly, it’s as if global markets have awoken to the risk that central bankers might be battling stubborn inflation for several years .. I certainly have my doubts that consumer inflation will conveniently return to previous dynamics. New cycle dynamics are at play. Indeed, there is today every reason to expect ongoing deterioration in the geopolitical backdrop. The forces of “de-globalization” and, more specifically, decoupling from Russia and China gain momentum by the week. In the U.S. and elsewhere, there are powerful investment booms associated with domestic manufacturing, renewable energy, infrastructure, defense spending and climate change. And there aren’t enough workers. These are patently not elements of previous cycle dynamics.
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I expect California to illuminate a fundamental Bubble maxim: inflation may appear the great wealth creator during the boom, but when Bubbles burst the true scope of wealth destruction is revealed. California has plenty of company. Bursting Japanese and Chinese Bubbles, in particular, will expose epic inflated perceived wealth, mal-investment and wealth destruction.
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..Years of unsound “money” coming home to roost.'
- Doug Noland,
Perils of Unsound Money, February 24, 2023
Context (Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..''..inflation .. deflation..' - '..the role time plays..' - '..social interaction..''What causes depressions is an unsustainable runup in credit and debt that precedes it..'(Global Stagflation) - '..inflationary biases percolating throughout the economy (and globally)..'(Global Stagflation) - '..inflation tends toward a cycle of unpredictability and destabilizing volatility that can extend for years and even decades.'Key US inflation measure surges at fastest rate since June, February 24, 2023
Key Fed inflation measure rose 0.6% in January, more than expected, February 24, 2023