The report said the world is experiencing the largest global directional economic shift in 40 years, which could lead to inflation levels that rise dramatically in just a few years, and that would be devastating to the lives of ordinary people.
We refer to the phenomenon of rising prices for the goods and services we buy as inflation, and hyperinflation has been seen as an economic nightmare for decades.
When the price of everyday items such as bread and gasoline rises, the general public goes into a panic. History has taught us that when it gets out of control, as it did in those years before the Nazis came to power in Germany, things can quickly get out of control.
Former U.S. President Ronald Reagan summed up this fear when he described inflation as “as violent as a mugger, as frightening as an armed robber, and as deadly as a killer.
As a result, economies around the world are struggling to keep inflation in check.
In a report this week, Deutsche Bank said the world’s financial institutions have now fundamentally changed their views.
As many of us have done individually over the course of the pandemic, they said, global powers have reflected on what they think is really important.
Major economies like the United States, and even more cautious countries like Germany, are less worried about debt and inflation and more concerned about trying to make our lives better by achieving “social goals,” the German political establishment says.
Economists in these large countries welcome government initiatives to improve the lives of their citizens, especially when we experienced such difficult circumstances during the pandemic.
Such goals are both necessary and admirable,” writes David Folkerts-Landau, chief economist at Deutsche Bank. They include greater social support for minorities, greater equality in income, wealth, education, and health care, and broader economic opportunity and inclusion. In this day and age, they should be front and center of any government policy.”
However, the bank’s economists warn that there is a downside to this.
To finance such a full and inclusive recovery, they say, central banks like the U.S. Federal Reserve will tolerate higher inflation and countries around the world will gladly take on more debt.
The epidemic has accelerated this shift in thinking,” the article continues, “and sovereign debt has risen to levels unimaginable a decade ago, with large industrial countries exceeding the red line level of 100 percent of GDP. Yet there is little perception among investors, governments or international institutions of the sustainability of huge debts.”
Similarly, regarding inflation, they say that the vast majority of central bankers and economists believe that any price increases away from the historically low levels of the past decade will be short-lived.
However, Deutsche Bank economists see this attitude as dangerous and are very concerned about what will happen if inflation continues to rise in the coming years.
The report warns, “We fear a return of hyperinflation, and few people remember how our society and economy were threatened by hyperinflation 50 years ago. These most basic economic laws, those that have stood the test of time for a thousand years, have not disappeared. The explosion of debt financed by central banks could lead to the eventual onset of hyperinflation.”
“We are concerned that central bankers are ignoring the painful lessons of past hyperinflation, either because they really believe this time is different, or they believe in a new paradigm that low interest rates will always be there, or they are just protecting their institutions and trying to avoid getting involved in political battles.”
And the report expects that inflation “will re-emerge,” but will need to wait until 2023.
“It really should have been a good thing for the Fed to shift its priority care goal to giving back to society, but ignoring inflation leaves the global economy sitting on a ticking time bomb, which is a terrible idea. Just as inflation is being prioritized, fiscal and monetary policies are being adjusted in ways the world has never seen before.”
The article also writes that the consequences will be devastating for everyone on the planet, but ironically, the new economic policies are designed to benefit the most vulnerable.
“Inflation will touch everyone. The effects could be devastating, especially for the most vulnerable in society. Sadly, when central banks act at this stage, they will be forced to suddenly change their policies, which will only make it more difficult for policymakers to achieve their goal of caring for the vulnerable.”
When central banks are finally forced to act on inflation, they will find themselves in a dilemma.
“They will be fighting the increasingly entrenched perception that high debt and higher inflation are a small price to pay for achieving progressive political, economic and social goals. This will make it politically difficult for society to accept higher unemployment in order to fight inflation.
Low and stable inflation and historically low interest rates have been the glue that has held macro policy together for the past three decades. If, as we expect, this starts to unravel in the next year or two, then policymakers will face the most challenging years since the Volcker/Reagan years of the 1980s.”
But Deutsche Bank’s “eschatology” is not widely accepted. Most economists agree with the Fed that there is now a consistent view in many parts of the world that the current inflationary pressures will eventually pass.
Jan Hatzius, chief economist at Goldman Sachs, mentioned in an interview with CNBC that there are “strong reasons” to support this position.
The U.S. economy has a ripple effect on the rest of the world, and he believes it will pick up when the enhanced unemployment benefits there end, putting workers back to their jobs in the coming months.
All of this suggests that Fed officials can stick to their plan and then gradually withdraw from the quantitative easing program,” he said.”
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/deutsche-bank-report-hyperinflation-not-far-away-global-economy-is-sitting-on-a-ticking-time-bomb/
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