Friday, May 22, 2020

2008 Was Chickenfeed

Faced with a pandemic, i.e. a REAL crisis as opposed to a monetary/debt one, the entire world has chosen to combat it by throwing money at it!  It’s a bit like treating a broken leg by swaddling it in paper instead of plaster.

And, oh my, what a lot of paper!  The current explosion of the Fed’s balance sheet is making the 2008  operations look like chickenfeed, mere penny ante.

The Fed Balance Sheet Rockets To The Moon

The problem is real in a physical sense, not just perception: economic activity has seized up leading to massive unemployment or, in the case of the EU, massive state subsidies and layoff prohibitions to keep the quarantined workers off the official unemployment statistics.  It’s just smoke and mirrors.

So, we have a triple whammy here: significantly lower production lowers supply, somewhat steady demand  with the $1.200 checks etc. smoothing things out to a degree and a whole lot of new money sloshing around.  Put them together and... yeah, I think high inflation is a real threat, after the immediate health danger is over.

Inflation plus high unemployment?  Here’s  a dirty word from the late 1970s - early 80s:  Stagflation.

I’ll be returning to this theme in my next posts.

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