Inflation Worriers Will Be Wrong for a Second Time
They warned of soaring prices after the financial crisis when deflation was the bigger risk. It probably is again.
Bloomberg, May 11, 2020
Here we go again:
The last set of inflation warnings came after the financial collapse of 2007-09. Even before that recovery was underway, a series of contrarian warnings about the inflationary and other consequences awaited us:
• Deficits would crowd out private capital, thwart growth, and damn us to a double dip recession;
• The move off of the 2009 market lows was “misguided and unsustainable.” A revisit to those lows, and beyond, was inevitable;
• Deep in a recession, countercyclical Keynesian fiscal stimulus is pointless and wasteful.
• The value of fiat currencies, especially the U.S. Dollar, was going to be the result of the Quantitative Easing (QE) and Zero Interest Rate Policies (ZIRP).
• The destruction of the dollar as the world reserve currency will naturally lead to Inflation;
• Not just inflation, but Hyper Inflation!
All of these attempts at a contrarian economic call proved not merely wrong, but deeply, unsound. They exhibited a fundamental misunderstanding of how economies function.
This crisis, we have a “New & Improved” set of warnings. The focus is on the return of imminent return of inflation.
UPDATE: May 12, 2020
April consumer price index (CPI) experienced the sharpest monthly decline since the Great Recession
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I originally published this at Bloomberg, May 11, 2020. All of my Bloomberg columns can be found here and here.
