Global is no longer a global price deflator, which means the U.S. isn’t going back to 2 percent inflation. From Charles Hugh Smith at oftwominds.com:
Where is the global deflator expansive enough to replace China’s one-off deflation of global inflationary forces? There isn’t one.
In broad brush, central banks got away with the illusion of permanently low inflation even as they pumped trillions in new currency into the global economy for one reason: China. It is useful to think of China in the early-to-mid 1990s as a system of vast, interconnected, untapped pools of:
1. Cheap labor just awaiting exploitation by global corporations, local entrepreneurs and state entities
2. Ambition, drive and long-frustrated desires for improved opportunities for individual/family betterment
3. Need for capital/credit to build a modern economy and infrastructure
4. Potential for national issuance of currency and credit on an unimaginably large scale
All four pools were tapped at ever larger scales over the past 30 years, enabling China to deflate the cost of good globally as “the workshop of the world.” All else being equal, issuing unprecedented quantities of currency and credit, both public and private, typically boosts consumption and production in the early “boost phase” of the S-Curve. But once the most productive uses of credit are satiated, the new money flows into unproductive speculation and financial skimming operations.
At that point, all the new money flooding into the system drives inflation, a trend reinforced by the depletion of all the cheap pools of labor and easiest-to-exploit materials.
