As the world economy awakens from the 15-month slumber caused by the pandemic, Deutsche Bank has launched a series of research articles to spark debate and discussion about pressing post-pandemic economic issues.
On June 7, Deutsche Bank issued its
first report of the new series, titled “Inflation: The defining macro story of this decade.”
According to the report, “US macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.”......................
According to Deutsche Bank, “Monetary stimulus has been equally breath-taking. In numerical terms, the Fed’s balance sheet has almost doubled during the pandemic to nearly $8tn. That compares with the 2008 crisis when it only increased by a little more than $1t, and then increased another $2tn in the subsequent six years.”
As any economist will tell you, printing gobs of money over a short period (which is what the Federal Reserve has done during the pandemic) is a key inflation ingredient.
We have seen this happen many times over the past century. From Weimar Germany to present-day Venezuela,
massive money printing never works and always spurs out-of-control inflation.
The Deutsche Bank report concludes with this dire warning, “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. … Rising prices will touch everyone. The effects could be devastating, particularly for the most vulnerable in society. Sadly, when central banks do act at this stage, they will be forced into abrupt policy change which will only make it harder for policymakers to achieve the social goals that our societies need.”
As mentioned above, the German people are well aware that skyrocketing inflation in and of itself can spark more than just economic upheaval. Hyperinflation, like that experienced in post-World War I Germany, can also lead to social disorder and political chaos.
In fact,
one of the reasons Adolf Hitler and the Nazi Party came to power in Weimar Germany was the public's resentment concerning the
hyperinflation they suffered as a result of endless money printing by Germany’s central bank in the 1920s to pay off World War I reparations.
:
