Friday, May 20, 2016

The Non-Linearity Of Inflation Psychology,
The Present Danger Of Stagflation
John Butler essay highlights how the long-standing debate of whether the economy is heading into deflation or inflation seems to be evolving more & more towards stagflation - rising price inflation with slow, stagnating economic growth .. "The psychological effect of 4%+ CPI, combined with timid action by the Federal Reserve on rates, could represent a ‘tipping-point’ in public inflation expectations. Once this occurs, there is a risk that economic behavior changes in unpredictable ways that can damage real potential economic growth .. I remain confident that, in the event of a general global economic slowdown, policymakers in heavily-indebted developed economies will continue to follow generally inflationary policies in order to support growth, notwithstanding the evidence, both historical and contemporary, that such policies are at best ineffective and, at worst, counterproductive. Indeed, I lean towards the latter view. Yes, a correction in equity markets may be coming in time but if sufficiently large, so is another round of fresh stimulus. Just where it is going to go, and how long it will take to get there, is anyone’s guess. But we know from where such ‘money’ is ultimately being covertly taken: The earnings and savings of working people the world over."
LINK HERE to the essay

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