In May 2018 we published: “k3 sees rough times ahead” arguing that global debt had risen to new record highs and there were only three possible ways to reduce the debt: It has to be paid back or the debtor has to default or it has to be devalued by inflation.
We argued that the preferred option for politics and central banks was to increase inflation and predicted rough times ahead.
We were too optimistic. Until now, nothing has happened.
COVID has changed the game in two ways. The first is money supply through even more debt and the second is a disrupted supply chain. Both factors push inflation heavily.
Money supply and has risen heavily. The USD overall money base M2 has increased by 30% in 2021 – until now. Additional billions will be added, as the so-called infrastructure spending will be backed up by additional debt. Additional money converts definitively into rising prices (inflation), if the production of goods and services does not increase in parallel (assuming the velocity remains constant).
The FED / ECB / Bank of England / Bank of Japan are able to tighten the money supply as the resulting raise of interest rates will result in a default of households, companies and even countries.
The production of goods & services is suffering various obstacles: The service industry is partly still in lockdown modus or can’t find employees (e.g. restaurants) , the production industry faces missing material (e.g. chips), strongly increasing raw material prices (e.g. wood, copper, construction material) and increasing freight costs and harbour lockdowns or delays (e.g. Shanghai, San Francisco).
All put together: the worldwide debt level has even increased since 2018, USD money supply has increased heavily (and will continue to rise) while production of goods and services is tightened by various factors, which will not disappear overnight.
The perfect outlook for long-term inflation. Let them do their useless chatting about “temporary inflation”.
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