FV Inflation Is Back. Protect Yourself

Video Length: 00:02:30

Monetary policy has gone from being a tool to help states make structural reforms to become an excuse not to carry them out.

The constant financing of deficits in countries that perpetuate structural imbalances has not only not helped to strengthen growth, since the Eurozone and the United States already suffered downgrades of estimates before the COVID-19 crisis, but is also driving inflation higher.
Monetary policy has been ultra-expansive for more than ten years, in crisis, recovery, growth and stabilization. In fact, the central bank becomes hostage to states that do not reduce their structural imbalances but perpetuate them because the cost of debt is low, and the central bank “supports” them.

It is no coincidence that the reformist momentum has stopped short since 2009. It coincides exactly with the period of never-ending balance sheet expansion.
Low rates and high liquidity have never been an incentive to reduce imbalances, but rather a clear incentive to increase debt.

Once in place, the so-called expansionary monetary policy cannot be stopped. Does any central banker believe that states with a structural deficit greater than 4% per year are going to eliminate it while there are negative rates and liquidity injections?
The worst excuse of all is that “there is no inflation.”

It is not by chance that the eurozone saw massive protests against the increase in the cost of living while we read that “there is no inflation”, but it is also, at the very least, imprudent to say that there is no inflation without considering the increase in non-replicable goods and services (rent, fresh food, healthcare, education, etc) and financial assets that have rocketed with this policy.

Negative yields in ten-year sovereign bonds of insolvent economies are part of huge inflation. Rising prices for non-replicable goods and services, which in many cases triple the official inflation rate, as a recent study by Bloomberg Economics shows, it is especially worrying when monetary policy encourages unproductive spending and perpetuates overcapacity. This means lower real wages in the future due to lower productivity growth. Bjorn van Roye and Tom Orlik at Bloomberg Economics conclude: Not only is real inflation higher than the official CPI, but it is also much higher for the poorest citizens (“Low-Income American Households Suffer Inflation Shock From Virus”).

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