IMF, G20 focus over supply chain bottlenecks, inflation fears

By Heather SCOTT

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OK, just one more important fiscal policy read, for such a lovely fall day!

From I & I's Editorial Board, October 13, 2021: Let’s Go Brandon! Looks Like Stagflation Is Already Here.

Relevant excerpts:

On the same day the International Monetary Fund cut its growth forecast for the U.S. economy, Atlanta Federal Reserve President Raphael Bostic warned that the “transitory” bout of inflation “won’t be brief.” . . . The IMF report, released Tuesday, has the international organization lowering growth globally by a 10th of a percentage point and for the U.S. by a full percentage point.


Take a look at the GDPNow estimate produced by [Atlanta Federal Reserve President Raphael Bostic's] Atlanta Fed. Basically, GDPNow tries to calculate the current quarter’s GDP in real time by tracking data that the Commerce Department uses to compile the official GDP number — which won’t come out until a month after the quarter has ended.

As a result, the “nowcast” can change as new data emerge. Look what’s happened in the third quarter. The first GDPNow estimate, produced in late July, had growth topping 6%. That’s where it stayed until late August. But then a flood of new data came out showing the economy had sharply decelerated. The “nowcast” suddenly dropped to below 3% growth.

The latest “nowcast” has GDP growth for Q3 at a mere 1.3%. If that turns out to be correct, which is fairly likely given GDPNow’s track record, it will mark the slowest quarterly growth in years. And it would come despite Biden’s $2 trillion stimulus, passed earlier in the year, which was supposed to “rescue” an economy that had shown consecutive quarterly growth since the spring 2020 COVID lockdowns of 33.8%, 4.5%, 6.3%, and 6.7%.


Meanwhile, the latest jobs report, which came out Friday, was an enormous disappointment — Barron’s called it “ugly” — showing just 194,000 jobs being added in September, despite predictions of 500,000. That came after the August report, described then as a “shocker,” which showed 235,000 jobs (later revised to 366,000) created where economists were forecasting 720,000.

Biden rushed out to praise the September report, pointing to the drop in the unemployment rate, which in this case reflected the fact that so many people have dropped out of the labor force (and don’t get counted as unemployed). That’s despite the more than 11 million job openings at the moment.

As Jason Fruman, who headed President Barack Obama’s Council of Economic Advisers, noted in a tweet: “Job openings: 11.7m Unemployed: 7.7m The 1.5 openings per unemployed is the highest ever recorded.”

There’s an attempt to blame all this on the Delta variant. But that can’t explain everything. The economy isn’t shutting down like it did last year, and this version is far less deadly than in the past.


The Atlanta Fed’s Bostic said he no longer refers to inflation as “transitory” because the current bout could last well into next year. “The real danger,” he said, is that the longer price hikes go on, “the more likely they will shape the expectations of consumers and businesspeople, shifting their views on pricing and wages in particular.”

That danger is already upon us. A survey by the Federal Reserve Bank of New York finds that inflation expectations are higher than they’ve been since 2013.

Those of us here who weren’t born yesterday — unlike most pundits on TV and everyone commenting on Twitter — remember that the last time we saw sluggish growth and high inflation, along with energy crises and foreign policy crises. It was called stagflation and it crippled the economy.

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Food for thought in the United States / and beyond, this fine autumn day, and for the rest of the season / And beyond . . .

Professor / dean emeritus / economist Bruce Yandle, writing in Reason Magazine: High Inflation Is Here To Stay, 10.13.2021 2:30 PM:

News that the September Consumer Price Index (CPI) rose by 5.4 percent on a year-over-year basis should be evidence enough for Federal Reserve Chair Jerome Powell, White House economists, and even the president to admit that we have more than a temporary inflation uptick on our hands.

Avoiding the hard truth or waiting before countering inflationary forces carries a cost. In this case, delays could mean harsher action later when, for example, the Fed hits the money brakes harder to cool the economy. In such a case we might see interest rates head to the ceiling, construction activity and high-tech investment plummet, and the economy roll into a recession.

Needless to say, Washington leaders have long been reluctant to call a spade a spade. But today, the no-no isn't depression or even recession. It's referring to unqualified inflation. No one in authority wants to admit that the dollars we hold are systematically losing their purchasing power. We are being quietly robbed by Washington's dollar-printing press, with politicians calling the shots. The presses are not operating without drivers.

So, what should our esteemed political leaders do? Gazing into a crystal ball and talking about things that may be transitory is what soothsayers and fortunetellers do. Just give the public the unvarnished story.

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@ Desert Tortoise

With respect, if your most apparant worry is based largely upon perceptions towards the steady decline in velocity of money, being deflationary trending instead of inflationary, combined with pandemic-induced temporary bottlenecks that - politicians assure - only cause "short-term" inflation, you likely need not fear the politician-shrivelling double-digit inflation of olden days that kills house-hold budgets of us mere mortals. Most reasonable economists don't see that. But most will tell you that inflation in the 4 to 8 percent range in G20 economies is likely - even probable - over the next few years. But what happens if it isn't as short? As the politicos insist it will be? What if the world waits too long and inflation doesn't prove itself soothingly “transitory”? Then it will need to tighten policy more aggressively than advertised, which could trigger steep rise in yields and / or a drop in riskier asset prices. Feeling the squeeze yet again, with bond yields moving up sharply, but real inflation-adjusted yields are still negative? Most serious investors see it. But the rich won't be the risk receivers, will they? No, they will just keep buying up more landin all the best places. Losers for the next two to three years will, as usual, be the bottom half of the income distribution slide; low income and what ever is left of the middle class, feeling the pain of real painful declines in real earnings against that “transitory” inflation. Not the wealthy friends-of-politicians-everywhere. I don't know about your neighborhood, but politics - being a blood sport over most of the globe - will want to hold someone responsible for this mess. Unless, of course, bread and circuses (panem et circenses, for you fans of the wreckage of the Roman Empire) can mollify the masses.

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@Skeptical, before the pandemic fundamental economic trends in money supply growth, or lack thereof and the decades long decline in the velocity of money were overwhelmingly deflationary in nature. The pandemic has disrupted supply chains and driven prices up but this is temporary. The velocity of money has not stopped declining, not even a hiccup in the steady downward trend line. If you look at money supply data you can see spikes that correspond to stimulus measures, followed immediately thereafter by the trend line returning to its long term trend. For most of us economists looking at the data we have there is little to suggest that once the short term shocks of the pandemic work themselves out the pre-pandemic trends will not resume.

Central banks around the world have for the past 13 years been trying to stave off deflation. That is why interest rates are low and sometimes even "negative" in some nations. Deflationary pressures have been a global problem that has vexed parliaments, commercial and central banks and anyone doing anything in terms of financial planning.

You want to blame someone? China has been shutting down their ports for typhoons, for Covid cases, for lack of power, all kinds of problems. Ports in the US lack enough empty containers, drivers to move the containers and chassis to load the containers on. Why? Everyone is ordering stuff on line instead of going shopping at conventional retail stores. You want blame? Look in the mirror. Did you really expect anyone with any level of education and experience to predict the outcomes of this pandemic? I think that is an unreasonable expectation. It is not like there is this cadre of experienced public servants who have been there and done that dozens of times. You have those for emergencies that happen more often like hurricanes or earthquakes, but no adult alive today has experienced anything like this. If you lived through the 1918 pandemic and are still alive you were a kid. Even then, with the experience of that pandemic well recorded for posterity the measures that proved effective then are too often rejected today as an affront to individual freedom and all manner of other excuses. Who could have predicted that a third of the US population would behave like kids and refuse to take their medicine to stop a pandemic. Maybe instead of looking to blame someone else we all need to do all the things necessary to end this pandemic. Wear a mask religiously, avoid getting close to other people and get vaccinated. Think in terms of your duty to your community and your nation to end this misery.

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So, according to this article, "supply chain bottlenecks" are the root cause of inflation, threatening to derail the global economic recovery.


[D]emand has spiked, suppliers have not been able to keep up.


Pandemic restrictions shuttered manufacturing and trade routes while suppliers, who are facing shortages of workers and truck drivers, have not been able to keep up.


[B]ottlenecks on raw materials, semiconductors and hiring difficulties on the labor market" will weigh on the growth dynamic "in the months and years to come.


[B]ottlenecks are driving sharp increases in shipping fees and the final cost of goods.


[L]ag in vaccination rates to contain the pandemic in developing nations is contributing to the supply constraints, and "as long as it widens this risk of interruptions in global supply chains is going to be higher.


Is that the list?  At least according to this article?

Are we sure?  Is this really an inclusive list of the inflationary situation (rampant, at least to anyone visiting the grocer or buying petrol over the past ten month)? 

Are we sure that soaring rates of global inflation that are being realized today are NOT just those mentioned above? 

Maybe it can also be . . .  maybe . . . a result of other factors? 

Such as . . . perhaps . . . the irresponsible fiscal and monetary policies being practiced by a select number of nations? That have used shutdowns, mandates and death counts as a opportunity to advance a particular political economic agenda? That have exacerbated an already toxic blend of economic uncertanty with trade, currency, labor, imimigration, climate change, and unrealized promises of globalization?

Nah!  It must be those flamin' bottlenecks.  Pesky thing about bottlenecks!  You never CAN predict when and where, can you?  Come on, certainly this whole inflationary and no-turkey-for-holiday thing CAN'T be any reason to point the finger of blame at any one politician or party, right? 

Bottlenecks? What can you do!

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In the big picture, this is good news. The crunch and inflation are mostly due to rising demand on the tails of a devastating global pandemic. This is testament to the power and effectiveness of governments' and central banks' aggressive fiscal and monetary stimulus.

Without it, the developed world faced the prospect of the worst global recession in modern history. I'm celebrating.

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