I enjoy your writing but respectfully disagree with your outlook (but hey, that makes a market!).
Stanley Druckenmiller made the point years ago that QE was deflationary, not inflationary. But I think inflation is coming because of two reasons. First, fiscal policy in both the US and Europe has completely changed. MMT (and the simplified political version of free money) is now in vogue.
If another tea party retakes Congress in 2022 maybe the narrative shifts again but right now Biden is intent on ramming through a $1.9 trillion stimulus package plus some kind of massive infrastructure bill in H2 of this year.
Second, Baby Boomers had to delay retirement due to GFC but are now have either already retired or going to retire en-masses post-Covid (for a variety of reasons). I don't think any company is prepared for the labour crunch that is coming (sure robotics and AI will help, but that's 5-10 years down the road or more). Cheers!
In my job, I am embarking on an extended analysis to write about the inflationary impact of fiscal spending which is a real thing. However, the question of and when fiscal spending is inflationary is empirically much less supported than most people think. I probably won't be able to write a post on this, but have a look at this paper to see that fiscal expansion might in fact be deflationary as well (I know, it found weird, but there is a difference between what should happen according to theory and what does happen in practice): https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxzb3JlbmhvdmVyYXZufGd4OjcxY2Y2MDU2ZmZjMmVmMGQ
Thanks for the great articles. I appreciate how you're able to distill the data cocophany into the main themes.
There seems to be so much focus on inflation and a commodity supercycle at the moment. Do you think that the commodity supercycle talk is a result of so much focus on inflation concerns? If we don't see persistent inflation then does that mean that a big underpin of the commodity price frothiness disappears and there will be a pull-back to lower levels?
It’s a hard one. I have no handle on the commodity cycle narrative so I find that hard to test. But what could trigger inflation is if the US engages in too much fiscal stimulus. The proposed 2tn stimulus is probably not going to get inflation unhinged but if they decide to do more later in the year or in 2022, it could become a serious problem.
Great article, excellent insights. IMHO inflation is muted because all this monetary stimulus does NOT end up in the average person's bank account. It ends up in bank vaults, to be spent by a relatively few. To get inflation, govt workers will need more than the token 2% pay raises per year that they have been getting. Dityo for workers in private industry. the military, SS recipients, etc. Without $ in their individual bank accounts, the stimulus goes up in smoke--literally. Did you see the rocket launch with Bezos on it a couple of weeks ago? That is where the fiscal spending was burned up.
I enjoy your writing but respectfully disagree with your outlook (but hey, that makes a market!).
Stanley Druckenmiller made the point years ago that QE was deflationary, not inflationary. But I think inflation is coming because of two reasons. First, fiscal policy in both the US and Europe has completely changed. MMT (and the simplified political version of free money) is now in vogue.
If another tea party retakes Congress in 2022 maybe the narrative shifts again but right now Biden is intent on ramming through a $1.9 trillion stimulus package plus some kind of massive infrastructure bill in H2 of this year.
Second, Baby Boomers had to delay retirement due to GFC but are now have either already retired or going to retire en-masses post-Covid (for a variety of reasons). I don't think any company is prepared for the labour crunch that is coming (sure robotics and AI will help, but that's 5-10 years down the road or more). Cheers!
In my job, I am embarking on an extended analysis to write about the inflationary impact of fiscal spending which is a real thing. However, the question of and when fiscal spending is inflationary is empirically much less supported than most people think. I probably won't be able to write a post on this, but have a look at this paper to see that fiscal expansion might in fact be deflationary as well (I know, it found weird, but there is a difference between what should happen according to theory and what does happen in practice): https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxzb3JlbmhvdmVyYXZufGd4OjcxY2Y2MDU2ZmZjMmVmMGQ
Thanks for the great articles. I appreciate how you're able to distill the data cocophany into the main themes.
There seems to be so much focus on inflation and a commodity supercycle at the moment. Do you think that the commodity supercycle talk is a result of so much focus on inflation concerns? If we don't see persistent inflation then does that mean that a big underpin of the commodity price frothiness disappears and there will be a pull-back to lower levels?
Thanks!
It’s a hard one. I have no handle on the commodity cycle narrative so I find that hard to test. But what could trigger inflation is if the US engages in too much fiscal stimulus. The proposed 2tn stimulus is probably not going to get inflation unhinged but if they decide to do more later in the year or in 2022, it could become a serious problem.
Great article, excellent insights. IMHO inflation is muted because all this monetary stimulus does NOT end up in the average person's bank account. It ends up in bank vaults, to be spent by a relatively few. To get inflation, govt workers will need more than the token 2% pay raises per year that they have been getting. Dityo for workers in private industry. the military, SS recipients, etc. Without $ in their individual bank accounts, the stimulus goes up in smoke--literally. Did you see the rocket launch with Bezos on it a couple of weeks ago? That is where the fiscal spending was burned up.