In this new episode of our video blog, we discuss the impact on the global economy of the coronavirus epidemic, as well as some important risks in policy action.
Watch the other episodes in my YouTube Channel: https://www.youtube.com/channel/UCoA66gIqiExUIjwyw1cB9Dw?view_as=subscriber
In a previous post, we mentioned that stagflation is a risk that central planners are ignoring. However, this risk is not just an isolated challenge focused on economies like Mexico, India or Argentina. Even in countries like Germany and Japan the trend of inflation, particularly in non-replicable goods, is diverging from economic growth. Inflation is picking up, while growth is slowing down.
We are in very interesting times. We live what is probably the most surprising bull market in history. Excess of demand-side policies, massive liquidity injections, and low rates have zombified the economy and driven debt to all-time highs, while the economic slowdown is evident.
Central banks have tried to create inflation at any cost under the misguided view that this will boost growth and help reduce the debt burden. Just as a pilot driving a Ferrari with the instructions of a Ford T, central banks are pushing the accelerator looking at the rearview mirror and screaming “go faster, we have not crashed yet!”.