This is super concerning. With inflation and a contraction in economy, this is looking like the potential for stagflation that we haven't seen since the '70s.
EDIT: Not here to fear monger since people are silently downvoting away. It's one quarter followed by a relatively strong quarter. But inflation issues have been present for a while and is growing worse. World wide conflict between Russia-Ukraine that affects everyone via energy. Concerns about a recession have been in the works for a while now as well. If you have confidence that my fears are unfounded, I'm happy to hear them.
Concerning but unavoidable. Interest rates must rise to subdue inflation, and an economic contraction is inevitable. Slow and steady deflates the bubble carefully.
Inflation is largely a political affair. It's a hidden tax that is designed to benefit those with large amounts of capital by devaluing capital that belongs to the lower classes. If you own properties, hard assets, you benefit from inflation and vice versa.
Unlikely until mid-elections. No political camp wants to be the one that stops the music and become the destroyer of wealth of the middle class. Yet the soft landing they keep touting is simply not possible with the amount of money printed.
The fed is at a tough place but if the US dollar loses the faith of other currencies backed by it, it could become a national security issue. Yet the decision maker's continued hold on power is dependent on them delaying it as such for the duration of their term.
Something has to give. $1 in 1992 is now $2 in 2022. It's very possible that it reaches $4 in half that time, possibly even as little as 5 years. This is a very real possibility that stakeholders are dealing with.
Hyperinflation is almost certainly followed by a major world conflict. ex) Weimarch Republic
> Hyperinflation is almost certainly followed by a major world conflict. ex) Weimarch Republic
Nah. The US is still too self-sufficient, even if the US collapses internally as a result of either inflation or political infighting (which is scarily possible, we've seen the first signs on Jan 6th 2021!) there won't be any need for the US to head to an offensive war for resources, space or revenge. The US produce more than enough food, oil and gas to serve the country's demands; the interesting thing will be anything involving computer chips but as long as Japan and South Korea don't get invaded there won't be a need for the US to intervene with its military.
The really interesting part will be China and Russia... but given that Russia gets their ass brutally beaten in Ukraine and most Chinese military designs have strong roots in Soviet and Russian technology, I seriously doubt that China will risk anything more than loud posturing.
In any case I think and hope that nuclear MAD doctrine should be enough to prevent a large scale world wide war.
Good post. You talk about MAD, but one interesting dynamic is that with conventional warfare, the US and its allies have un-paralleled capabilities but one check on that is that if they were to project this power onto a foreign territory like Russia/China there is a disadvantage in that the US would be unlikely to launch nuclear weapons on locale's where troops could be harmed by them thereby creating a dis-incentive to invade.
I'm not so sure that China is simply bluffing. The recent lockdowns in Shanghai is very peculiar. It does not appear to be aimed at reducing transmission, rather it looks like mobilization during war time. I'm inclined to think that its a sort of a civilian war exercise in case the mainland faces retaliatory strikes but for what?
Xi like Putin is on the edge of the cliff. When strongman fear an uprising, they create external conflicts to mobilize the crowd. For Putin, it was 3 decades of stealing from the Russian state and people with covid decimating it's economy. Similarly for Xi, it is the continued economic growth that legitimizes its power and with the deflation of its real estate industry, zero covid strategy touted by xi, that in turn created an economic fall out, it's do or die for Xi before the 20th party congress in a 4 months or so.
I fear that Taiwan will suddenly find itself in a situation like Ukraine except I do not think the US and its allies will allow China to gain unchecked access to the Pacific ocean by taking Taiwan and its semiconductor production that US military depends on.
I see the current Chinese lockdown as the ultimate "never ever lose face, no matter how high the cost" scenario. China decided very early on to solely allow their vaccines (which turned out to be pretty low quality) and to combine that with a rigorous containment policy.
The idea of a containment policy was pretty solid and effective (even though the measures taken were sometimes beyond all reasonability), the problem was that the low vaccine efficiency completely imploded that idea with the Omicron mutants.
And now, the Chinese government is in a pretty bad place politically... their choices are a) to admit that the vaccines are shit, allow internationally recognized vaccines and keep containment policy until these have been rolled out b) admit that the containment policy has failed and accept the spread of covid like most Western countries did or c) counteract the improved spreadability and immuno-escape capabilities of SARS-CoV-2 by harsher containment measures.
Neither of these three options are good, and I believe that the fear of Xi's regime to "lose face" will inevitably lead them to option c) as it is the only way that does not force the regime to admit that their decisions have been faulty - the central committee can simply declare lower ranks not following orders are the culprits and so Xi's face is saved.
There is also an addendum - as all three options lead to a severe hit in popularity and correspondingly a threat of the stability of the Chinese government, the regime may decide to invade Taiwan for political gains ("we led the secessionists back into the homeland"). The key question there is if the regime is willing to risk a Russian scale defeat, as unlike Russia China has practically zero experience in military conflict and Taiwan has a direct bilateral defense agreement with the US.
Got news for you. Interest rates as a lever on inflation is unproven. It may actually contribute to more inflation as the Federal Government is a net payer of Interest and as such interest income paid out to the private sector increases. This adds liquidity to the economy and could increase demand.
EDIT: Not here to fear monger since people are silently downvoting away. It's one quarter followed by a relatively strong quarter. But inflation issues have been present for a while and is growing worse. World wide conflict between Russia-Ukraine that affects everyone via energy. Concerns about a recession have been in the works for a while now as well. If you have confidence that my fears are unfounded, I'm happy to hear them.