Grant warns Covid economic disruption into 2022 and supply side inflation

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Grant pointing out the bleeding obvious today…

Grant Robertson: Supply chain issues could affect NZ ‘into next year’

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.

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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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4 COMMENTS

  1. Of course knowing all this, instead of spending billions building roads and bringing in more foreign students/workers turned takeout workers to fuel NZ’s obesity/diabetes health disaster (affecting 1 in 3 NZ adults), the government could start creating local substitutes in NZ to ease material shortages …. that is actually what they did in wars.

    Masks, wood, aluminium, food, technology, clothing, wool, are all in NZ already…. as is a pretty decently educated population just waiting for a decent job opportunity… the problem has been NZ neoliberals control the supply chain to government and industry are now filled with networkers and the corrupt who have the ears of government and business leaders. Neoliberal leaders just want to be middle men, clip the tickets, get paid a bomb, and have little control, but that does not really work well in pandemics and supply disruption.

    While expertise is not valued in NZ anymore (or long term planning) there are a surprising amount of world class experts in NZ in diverse fields and still those who actually have a real qualifications in science and medicine to run programmes (like Peter Gluckman types who worked out that the Meth levels used to evict people, were bogus.) rather than the usual lawyers, economists and marketers who seem to be more responsible for planet and economic destruction like GFC and global warming, but still leading the committees getting it all wrong.

  2. Freight importation particularly from China has gone up 100% in the past 3 months. The inflation shit storm is about to hit. Watch for significant pain in the construction game.

  3. The global oil supply continues to decline -with dire consequences the clowns in government refuse to acknowledge.

    The global overheating continue to increase -with dire consequences the clowns in government refuse to acknowledge.

    The Ponzi American dollar continues to become increasingly stranded -with dire consequences the clowns in government refuse to acknowledge.

  4. By the way, that ‘With America predicted to gain a 7% growth rate this year,’ is as worthless as the business-as-usual organisation that generated it.

    Sure, the fudgers may be able to generate number that look like growth for a while but American is in the early stages of collapse, and none of the shifting of deck chairs on the Titanic will alter that.

    Don’t be surprised when the exodus from California exceeds the fleeing of Oklahomans from the Dust Bowl that John Steinbeck wrote about:

    And they won’t be fleeing to Oklahoma because conditions there are just as bad.

    https://droughtmonitor.unl.edu/

    I guess the day they have to abandon Las Vegas

    http://graphs.water-data.com/lakemead/

    will go largely unnoticed because chaos will be reigning supreme

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