On the fundamentals, inflation arguments have failed for 9 years. It has been a bear market for commodities. The death of dollar has been happening for the past 20 years. I've always maintained those arguments will be proven correct eventually, but there are only hints of it happening right now, not reality. Almost all the people arguing for inflation are making the same argument they've made before, while the real economy is stuck in the same trap. Credit growth is not rising outside of government. Supply disruptions are not inflationary in the long-term unless there is money creation backing it up. Without money creation "monetizing" the price increase, it causes deflation. The potential change is politics. If the governments of the world continue running up fiscal deficits that are monetized via the central bank, then there may be inflation moving forward. Private credit growth will turn higher with inflation or governments will run ever rising deficits as the economy collapses amid currency devaluation. Forecasters of high inflation are putting the cart before the horse though. In the U.S., the Republican Senate is back on an austerity kick now that deficits aren't funding defense and tax cuts. Any negative hit from "austerity" will hurt Biden and because voters tend to vote straight tickets more than before, if voters want to punish Biden in 2022, they'll give control of the House back to the GOP.
The other piece of the puzzle is the most important chart in the world, the U.S. dollar. A breakdown in the greenback will fuel price increases whether they're fundamentally warranted or not.
No comments:
Post a Comment