Hedged.Biz

  • Disclaimer
  • About Us
  • Articles
  • Home
  • Articles
  • Deflation Then Inflation
April 12, 2021

Deflation Then Inflation

Deflation Then Inflation

by Burnham Banks / Saturday, 02 May 2020 | 9:54 am / Published in Articles

At this time of COVID19 pandemic, social and economic disruption and recession, I can see instantaneous deflation due to the demand shock, but I also see a longer term trend of rising prices. This could present investment opportunities, and risks, and would certainly complicate monetary policy.

Given the acute reduction in demand, deflation is the more visible risk. With total and partial lockdowns, people cannot move about to spend, and unemployment is rising so people may have their purchasing power severely impaired. Overlay this with pessimistic sentiment and demand is further reduced. Deflation or at the very least disinflation should occur.

There is always, a however. Prices have been weak for the past two decades mainly from innovation, trade and globalization. Optimized supply chains and production plans mean that for a level of output, costs are constantly being minimized. For this to work, society must choose efficiency over robustness, be willing to trade freely, be happy for free markets to operate regardless of distribution of utility or welfare.

With the global trade war, incepted almost a decade ago but accelerated with the Trump Presidency, productive efficiency will suffer, raising costs.

With the COVID19 induced economic crisis, humans will raise robustness at the expense of efficiency, raising costs.

Governments have greatly increased their national debts to finance emergency fiscal support. These debts will take a long time to pay down. Governments will encourage inflation to erode the real value of their national debts. The high debt levels also risk disorderly devaluations and hyperinflation from loss of confidence.  

In order to finance fiscal stimulus, tax rates will rise and tax codes will become more progressive. The net transfer of wealth from rich to poor will increase the propensity to consume, encouraging higher inflation. A corollary to this is that governments will try to reduce the external purchasing power of their currencies (or improve their terms of trade), which could encourage currency devaluations, which could in turn trigger currency regimes such as Bretton Woods.

 

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • WhatsApp
  • Email
Deflation Then Inflation
http://www.hedged.biz/deflation-then-inflation/
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • LinkedIn
  • Digg
  • Del
  • StumbleUpon
  • Tumblr
  • VKontakte
  • Print
  • Email
  • Flattr
  • Reddit
  • Buffer
  • Love This
  • Weibo
  • Pocket
  • Xing
  • Odnoklassniki
  • ManageWP.org
  • WhatsApp
  • Meneame
  • Blogger
  • Amazon
  • Yahoo Mail
  • Gmail
  • AOL
  • Newsvine
  • HackerNews
  • Evernote
  • MySpace
  • Mail.ru
  • Viadeo
  • Line
  • Flipboard
  • Comments
  • Yummly
  • SMS
  • Viber
  • Telegram
  • Subscribe
  • Skype
  • Facebook Messenger
  • Kakao
  • LiveJournal
0

Ten Seconds Into The Future

“Hello. I’m Burnham Banks and I studied economics in the late 80s and early 90s. I’m still studying economics today and am still no wiser. This blog is a journal, a record of my thoughts and experiences. If we are destined to repeat our mistakes, we should at least repeat them faithfully. If not, then perhaps the past is a mischievous guide and we should try something new.”

Meta

  • Entries RSS

Featured Posts

  • Market Timing. Impossible and Important all at once.

  • Information Efficiency and Firm Size. Implications for Growth.

  • The Focus on Inflation

  • Inflation and Secular Stagnation. Causes and Remedies.

  • Ten Seconds Into The Future 2020 07

  • Thoughts About FX. USD vs RMB.

  • A Recovery Investment Strategy for COVID19

  • Impact Investing

  • Don’t Stand So Close To Me. (With apologies to Mr Gordon Sumner.)

  • The Outlook Under The Shadow of COVID 19

  • COVID19 Investment Strategy Response. General non Specific.

  • COVID 19, Contagion, Economic Consequences and Risks. 2020 03.

  • COVID 19 and Recession. Mitigating The Economic Cost.

  • Update on Economic and Market Outlook. COVID 19.

  • Artificial Intelligence May Be Upon Us

  • Energy.

  • ESG Investing Is Hard To Do.

  • 2020 Investment Strategy. Generally Cautious.

  • Gold. Political Risk Hedge. The Schadenfreude Trade.

  • 10 Seconds Into 2020. Geopolitics and US Elections.

  • Information, Efficiency and Scale

  • China and the US. Is the Belt and Road Initiative China’s Marshall Plan?

  • Efficient Oppressors

  • Fools are to Society as Carbon Control Rods are to Nuclear Reactors.

  • US Drug Approval Process – Extracted from various sources. For Personal Reference Only.

Categories

  • Articles

Archives

  • RSS FEED

Copyright 2018 © Hedged.Biz All rights reserved

TOP

Send this to friend