Posted on 06/09/2021 7:58:03 AM PDT by SeekAndFind
Deutsche Bank said the U.S. may be headed toward one of its worst periods of inflation in history amid increased government spending and relaxed monetary policy, warning that the belief inflation is transitory could have serious consequences for the economy.
The report, which was released Monday, begins with a series of quotes—contrasting Ronald Reagan's warning about how serious inflation is with how Joe Biden, Janet Yellen and others have justified "acting big."
"Despite the shift in priorities, central bankers must still prioritize inflation," the report says. "Indeed, history has shown that the social costs of significantly higher inflation and greatly expanded debt servicing obligations make it hard, if not impossible to reach the social goals that the new US administration (among others) is keen to achieve. We fear that the vulnerable and disadvantaged will be hit first and hardest by mistakes in policy."
Deutsche took particular issue with the Federal Reserve's new framework tolerating higher inflation in order to reach a full recovery.
"The consequence of delay will be greater disruption of economic and financial activity than would be otherwise be the case when the Fed does finally act," Deutsche noted. "In turn, this could create a significant recession and set off a chain of financial distress around the world, particularly in emerging markets."
The bank also took an opposing view to the belief that the rise in inflation will be temporary.
"We are witnessing the most important shift in global macro policy since the Reagan/Volcker axis 40 years ago. Fiscal injections are now 'off the charts' at the same time as the Fed's modus operandi has shifted to tolerate higher inflation. Never before have we seen such coordinated expansionary fiscal and monetary policy. This will continue as output moves above potential. This is why this time is different for inflation," the report said. "The effects could be devastating, particularly for the most vulnerable in society."
In conclusion, the bank said the Fed's approach to inflation "leaves global economies sitting on a time bomb."
We worry that inflation will make a comeback. Few still remember how our societies and economies were threatened by high inflation 50 years ago. The most basic laws of economics, the ones that have stood the test of time over a millennium, have not been suspended. An explosive growth in debt financed largely by central banks is likely to lead to higher inflation. We worry that the painful lessons of an inflationary past are being ignored by central bankers, either because they really believe that this time is different, or they have bought into a new paradigm that low interest rates are here to stay, or they are protecting their institutions by not trying to hold back a political steam roller. Whatever the reason, we expect inflationary pressures to re-emerge as the Fed continues with its policy of patience and its stated belief that current pressures are largely transitory. It may take a year longer until 2023 but inflation will re-emerge. And while it is admirable that this patience is due to the fact that the Fed’s priorities are shifting towards social goals, neglecting inflation leaves global economies sitting on a time bomb. (Deutsche Bank)
In time, social priorities will pushed to the back burner if "inflation returns in earnest" and central banks are forced to act, making policy changes that "will only make it harder for policymakers to achieve the social goals that our societies need."
Pedo joe see no evidence of inflation. And, if there is any, it’s merely temporary.
I noticed that for gold and silver, $1,900 and $28 are a brick ceiling, respectively. Once they break through, it could get interesting.
This is not like that sudden and short lived spike in 2020. This has been slow and steady until it hit this “cap”.
https://goldprice.org/
https://silverprice.org/
Look at the graphs for different time spreads. Interesting stuff.
Someone in the Biden administration should just say that warning about high inflation is a sign of white supremacy. That should get all those Doubting Debbies back in line.
2008 was a dry run. And make no mistake, there were elected political leaders that were scared chitless.
There were two articles at the time about a couple of congressmen coming out of a secret meeting (just before QE) calling their wives and telling them to take all they could out of any ATM’s they could find.
Just sayin’...
My prediction is over 30% a year inflation. The Communist Revolution continues...
Time to take out a fixed rate mortgage?
Inflation is already here.
My favorite Hot and Spicy breakfast sausage went from $4.99 several
months ago to $8.99 now for a box of 18 patties. So, I don’t buy them
anymore.
That bank is famous for making “hair on fire” predictions.
I agree with the FED. Temporary inflation from supply shortages which will wither by next year.
I have hedged that in my investments, as always, so I’m ready either way.
“My prediction is over 30% a year inflation. The Communist Revolution continues...”
Ridiciulous.
I stand by my prediction. It is based on the expansion of the money supply which it the true source of inflation.
They are always talking thier own trading book.
That’s what our open-borders immigration policy is all about, by the way. To ensure its survival, this country needs an influx of peasants who are dumb enough and/or desperate enough to sign up for their share of a $30+ trillion national debt and $100 trillion in future entitlement liabilities.
Today inflation is a very important part of federal fiscal policy.
The federal government is spending money at incredible speed adding to the federal debt. If there is double digit inflation, then the amount of money that will be required in the federal budget to service that debt (interest plus principal payments) will skyrocket. The saving grace (only from a Democratic political perspective) is that the money and interest that was borrowed will be paid back with cheaper dollars that are worth less. This combined with the fact that tax revenues will increase as inflation pushed people into higher tax bracket and all kinds of “tax the rich” state and local taxes, is why Democrats are not afraid of inflation. They should be, but they are not.
Consider inflation psychology. People think savings will be worthless so they get rid of cash by bidding up the price of anything non-perishable or that they can resell later. Also upward wage pressures from extra unemployment benefits and other free money will raise the price of everything. Also credit which expands by people borrowing and spending or contracts by people paying down debt.
All of those can cause inflation without an increase in the money supply.
I’m paying $1.19 more for a gallon of gas than I was on election day. From $2.50 to $3.69. That’s almost a 50 percent increase in seven months.
Wait…Ben Bernanke said dumping helicopter loads of money on financial centers was a GREAT thing to stimulate the economy!?! Is Deutsche Bank trying to slow down our recovery? /s
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.