Economists warn of 15-20 years of structurally elevated inflation and financial repression
Affected by persistently high inflation, the central bank has begun to take countermeasures such as
Russell Napier: The world will experience a capex boom
https://themarket.ch/interview/russell-napier-the-world-will-experience-a-capex-boom-ld.7606
“For the past 40 years, we have grown accustomed to the idea that our economy is driven by the free market,” Napier said. We're not talking about a command economy or Marxism, we're talking about an economy where the government plays a big role in allocating capital, a system that prevailed from 1939 to 1979, nothing new. ” points out.
The main reason for such a change was simply that the debt level was simply too high. Total private and public sector debt in the US amounts to 290% of GDP, 371% in France, and over 250% in many other Western European countries, including Japan. Compared to the Great Recession of 2008, this debt level is far too high, Napier said.
In 2008, when the Lehman Brothers collapsed, the global economy was on the verge of liquidation of debt due to deflation, and the entire system was in danger of collapsing. To address this, the ratio of private and public debt to GDP had to be lowered, and the easiest way to do that was to increase the growth rate of nominal GDP. This technique has been used for decades after World War II.
However, as of 2022, the crisis of system collapse is about to come again. ``I think the reason is that the power to control the creation of money has moved from the central bank to the government,'' Napier said. 'By providing a state guarantee, the government has effectively taken over the levers that control the creation of money, fueled by the Ukrainian-Russian war.' Although the policy was only a temporary emergency measure to deal with the pandemic, he argued that another emergency, the energy crisis, was occurring due to the overlapping wars.
A combination of emergencies has prevented the government from backing out of these policies. Looking at statistics on bank loans to companies in the EU since February 2020, 40% of new loans in Germany are government-guaranteed bonds , 70% of new loans in France, and over 100% in Italy. increase.
Increased credit guarantees by directing governments how and where to make guaranteed loans to banks, directing investments where they want: energy, inequality projects, public investments to fight climate change You can, Napier said. By leading to more credit guarantees, or more money, the government can control the nominal growth of the economy, Napier said.
“Growing nominal GDP at such a structurally high rate of inflation has proven to be a way to get rid of high levels of debt. This is how we got rid of the debt, and of course no one says it publicly, and most politicians probably don't realize it, but higher inflation to boost nominal growth is the desired outcome here. Let's not forget that in many Western countries, the ratio of gross debt to GDP has been considerably higher even after World War II,' argued Napier.
Napier said he was convinced of the theory when he saw bank credit still expanding despite a significant slowdown in growth and even headed into recession. Banks with money will continue to lend and nominal GDP will continue to grow.The economy will not shrink in nominal terms.”
It has also been pointed out that 'stagflation', in which prices rise despite the recession, may occur. When it was pointed out that it was the same kind of stagflation that was seen in the Great Depression of the 1970s when oil occurred, Napier dismissed it as ``complete nonsense.'' ``Stagflation is a combination of high inflation and high unemployment, which is unlikely because unemployment is currently at a record low,'' he said.
Ben Carlson, who wrote a book on wealth management, investment, and financial markets, said, ``Stagflation is what the Federal Reserve is most concerned about. But the authorities have carefully studied the trends of the 1970s to avoid repeating the same mistakes: oil prices rose far less slowly and energy as a share of household budgets was much lower. ' and argued that a repeat of the 1970s inflation was unlikely.
Why Today's Inflation is Not a Repeat of the 1970s
https://awealthofcommonsense.com/2022/11/why-todays-inflation-is-not-a-repeat-of-the-1970s/
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