One of the interesting results of the Covid pandemic is that many people have learned that the so-called “experts” can be completely incompetent nincompoops. Nevertheless, despite discovering this, we still put our faith in the experts in economics. We should not.
As 2022 starts, it appears that inflation is ramping up at a rapid pace. Here in New Zealand, the CPI has jumped up to 4.9%, and this reflects broader global inflation. Indeed, this rapid rise is occurring across the OECD (Organisation for Economic Co-operation and Development), and it seems to be accelerating. So I was thinking that the best way to convey the speed of the rise is to show what happens if we look at annual CPI (consumer price index) inflation versus quarterly, then monthly inflation. You can see this in figure 1, 2, and 3 below (source OECD here, figures include date up to November 2021):
These three figures are interesting because we can have a sense of the acceleration in the rate of inflation. The closer we come to now, the higher the inflation jumps. No doubt, the inflation rate will have jumped even higher since November, which was the most recent data used in the charts. Another fascinating point is that the inflation rate for energy has exploded. As energy costs are input into just about everything, this suggests that there will be a further acceleration in CPI inflation. Finally, we can also see the direction of travel in Producer Price Inflation in the OECD, as can be seen in figure 4 below (source, OECD here, figures up to October/November):
As I have discussed previously, China has been engaging in massive stockpiling of commodities (possibly in preparation for war), which is undoubtedly driving some of the inflation. However, as I have pointed out time and time again (e.g. here for the most recent), the real problem is that many governments have reacted to the Covid pandemic by doing two things; (1) shutting down and destroying sections of their economies and, (2) borrowing printed money to fund monstrous government borrowing to try to dull the effects of their absurd policies.
I have previously pointed out how dangerous a toxic mix is created by (1) and (2). In particular, the lockdowns and other restrictive measures have seen less output from existing businesses, the permanent shutting of other companies, and a substantial reduction in the commencement of new enterprises. All of this means one thing; the overall output of goods and services, and potential output, globally has been reduced. At the same time as this has taken place, governments have been increasing the money supply through printing money, not least of which is the US (see chart below, source here):
There are many ways of measuring the money supply, but they are all currently showing the massive impact of the enormous amount of money that central banks are printing. As a note, they no longer physically print money. Still, the effect of the new method is identical to the actual physical printing of money (they use the jargon “quantitative easing” to obscure the reality of what they are doing). As you can see from the chart for the US, this is not the first time that governments have run the printing presses, but you can also see that the speed that the presses are running is genuinely extraordinary.
The most concerning part of what is happening is that, as inflation started to appear, many “experts” were in complete denial of reality, proposing that the rising inflation would be “transitory”. There can be no better exemplars of this denial of reality than Christine Lagarde and Janet Yellen, who made exactly this claim. The former is the US Treasury Secretary (and formerly head of the Federal Reserve), and the latter is the president of the European Central Bank. In both cases, they are embedded in the world of economics, with more “experts” than can be imagined, but proved to be completely wrong about the “transitory” nature of the climb in inflation. In other words, the “experts” are entirely clueless.
It does not take an expert to realise that the economic destruction of global lockdowns will mean a massive reduction of capacity to produce goods and services, both in the short and medium term. It also does not take an expert to realise that government borrowing and printing money will see more money chasing a reduced supply of goods during such a period. Some degree of an increase in inflation is an absolute certainty in these circumstances. It was just as evident that it would not be “transitory.”, especially when the problems that caused the inflation, borrowing printed money, and Covid restrictions were ongoing.
If there is one thing we should all learn from this pandemic, it is that the elite technocrats, most of whom believe that they are superior beings to the rest of us, are nincompoops. Unfortunately, however, we will only learn quite how foolish the economics experts are as the impacts of their idiotic policies will be over the coming two years. Indeed, we will see the conjunction of the policy idiocy of the public health experts and economics experts. They have both created an almighty mess in their respective areas of expertise. The problem is that the damage of their foolishness will extend way beyond health and economics. At the moment, it is too early to tell what will happen, but the combination of idiocy in these two areas has created massive instability over the entire world.
As a result, we can expect “interesting” times from 2022 to 2023. The ripples of the foolish policy have only just started, and goodness knows what will be coming down the line.