The key word is “unavoidable.” From Charles Hugh Smith at oftwominds.com:
Policy errors have consequences, and we’re only in the first inning of those consequences.
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If we ask, “what’s changed?,” two under-appreciated dynamics pop out: risk and consequences: risks are rising globally in a multi-dimensional self-reinforcing way, and the consequences of the Federal Reserve’s 14-year policy error known as ZIRP–zero interest rate policy–are finally manifesting in unwelcome ways.
The Great Moderation is a term often invoked to describe the multi-decade reduction in global risks from 1990 to 2020. Geopolitical tensions diminished, the entry of China’s vast workforce and productive capacity lowered the costs of labor and production, effectively suppressing inflationary forces, and the financial markets responded by demanding less of a risk premium on the price of bonds and credit: a reduction in inflationary pressure and risk led to a gradual reduction in yields and interest rates.
Global risks are now rising, as are inflationary pressures. China’s inflationary monetary and fiscal policies have raised wages and costs, ending the era of China exporting deflation. The Federal Reserve’s 14-year suppression of interest rates to near-zero as it opened the floodgates of credit has finally generated consequences: inflationary pressures can no longer be put back in the bottle, for a variety of reasons, including unfavorable demographics, global changes in supply chains, resource depletion, and so on.
