Grant pointing out the bleeding obvious today…
In his first major pre-Budget speech, Minister of Finance Grant Robertson has warned that while New Zealand exports are getting out to the world, “supply chain issues” will continue to affect the country for the rest of this year and potentially into 2022.
…this supply side scarcity has the potential to accidentally trigger inflationary pressures that see prices spiral upwards.
If interest rates are forced up, the ocean of debt can’t be serviced.
I think the collective sense of optimism from vaccine roll outs is misplaced. Our supply chains are deeply ensconced in the developing world that still hasn’t been vaccinated and
With America predicted to gain a 7% growth rate this year, the highest since the 1980s, how can interest rates remain low?
One of the great surprises in modern economics was that the avalanche of quantitative easing used to save the global economy from American Corporate bank greed in the 2008 financial meltdown didn’t create an explosion in hyper inflation in the day to day lives of ordinary people.
Because of the ease of global labour supply, wages didn’t increase, prices of goods stagnated, inflation disappeared but it did create the false conditions for the lowest interest rates in 5000 years, and saw all that quantitative easing balloon into speculative house and stock prices.
Covid has seen the main banks of the West sink trillions more into quantitive easing to deal with the economic whiplash the pandemic has created and in NZ we saw with the pumping of billions into the pockets of property speculators how our own house prices have skyrocketed.
This game of printing money to pump into property and stock market speculation to create a false illusion of wealth can continue playing as long as hyper inflation doesn’t overturn the apple cart.
Your Kiwisaver going up and your property value climbing is one thing, paying $15 for a loaf of bread and $20 for milk is completely another.
After every great pandemic throughout history, the peasant revolt in the 1300s, the London riots of the 1600s and the social unrest right after the Influenza pandemic of 1918, society always goes through intense social change brought on by the economic collapse lockdowns generate.
If the bottlenecks of supply chains are blocked unleashing a tsunami of hyper inflation on the goods everyone requires for life, Central Banks will have no choice but to lift interest rates to desperately attempt to curtail that hyper inflation, which of course will mean the ocean of low interest debt that has been created to fuel hyper speculation will suddenly start feeling the true gravity of trillions in borrowing.
I’m no economist or financial guru, but it seems the basic laws of capitalism’s supply and demand will unleash a terrible tsunami of hyper inflation that the Global Reserve Banks will struggle to contain in any other way than to allow stock markets and house prices to shatter and crash by forcing interest rates back up.
Now if a vaccine can reach the 75% global herd immunity threshold, those supply chains will reopen, but if we don’t gain that herd immunity, quarantine will continue to force those supply chains closed and the prices of scarce ordinary goods will start to dangerously inflate.
I feel like someone far smarter than I should be worried about all of this.
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