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Central banks will happily ignore inflation-mongers

6 Comments
By Balazs Koranyi and Howard Schneider and Leika Kihara

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© Thomson Reuters 2021.

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Central banks have not been "underestimating" inflation as the article alleges. Inflation doesn't exist for all but a couple of bankrupt countries like Venezuela, Argentina and Lebanon. For the rest of the world DE-flationary pressures remain from the 2008 Great Recession. Central banks would dearly love a nice constant 2% per year inflation rate. That is ideal for business. Predictability is highly sought. Instead central banks have had to make do with inflation rates closer to 1%, sometimes less. The great fear of central bankers is a return of deflation. It is a lurking huge danger that the press and laymen are underestimating.

2 ( +2 / -0 )

Their central concern is employment.

There is still a 10-million-job hole in the U.S. economy while the euro zone unemployment rate is kept artificially low by government subsidies, pointing to huge spare capacity.

I would beg to differ that is the central concern. Financial concerns are making extraordinary profits now. Many pre-pandemic jobs are not returning. There will be a new paradigm post pandemic.

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I'm looking forward to seeing Larry Summers being proven wrong....again.

2 ( +2 / -0 )

Watch William T Still’s documentary about the central banks. Best way to understand about them.

https://youtu.be/mB-pdPaQNKA

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I would beg to differ that is the central concern. Financial concerns are making extraordinary profits now. Many pre-pandemic jobs are not returning. There will be a new paradigm post pandemic.

You are not looking in the right places for information. Money supply data and the effects of the previous stimulus do not bear this out. You can see a big spike in M3 growth right after the last stimulus but it only lasts a couple of months then returns to the previous trend line. The decades long decline in the velocity of money, meaning how often a Dollar changes hands in a transaction has actually accelerated sharply over the past year. What that means is that inflationary measures like stimulus spending are mostly defeated by a lack of transactions. The fact that banks have a lot more cash on hand than they need to meet their reserve requirements is in fact part of the problem that is creating deflationary pressures. That money should be lent out to grow businesses but nobody is borrowing. Small and mid sized businesses are already overextended and unwilling to borrow more.

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I don’t see something worth to be named post-pandemic or inflation because of spiking demands. To illustrate it, a simple stupid question... If you still have to wear a mask after your vaccinations and also surely will have to pay taxes and the like for the vaccines you’ve got and all debts your country has made during the corona years for supporting your workplaces , restaurants and your helping cash handouts, will you really now storm into the department shops and buy cosmetics with no money in your hands and nobody who can look at you because you are wearing the mask? No, I bet. No buying, no producing, no selling, no jobs, no income, no (healthy) inflation. Of course you have a kind of the bad inflation, for example the taxes, that I named in the example.

-1 ( +0 / -1 )

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