Financial Times/Martin Wolf/8-30-2022
“They are right to take this judgment. A shift into a 1970s-style era of high and unstable inflation would be a calamity. Yet there is indeed a risk that the slowdown in economies caused by a combination of falling real incomes, and tightening financial conditions will cause an unnecessarily deep slowdown. One part of the problem is that calibrating monetary tightening is particularly difficult today, because it involves raising short-term rates and shrinking balance sheets at the same time. A bigger one is that policymakers have not confronted anything like this for four decades.”
USAGOLD note: The biggest part of the problem, and we are not stating anything new when we say it, is that acting against one only encourages the other. That is why so many heavyweight money managers (Ray Dalio comes to mind) have settled on the notion of a Fed charting a high-risk course between the two, i.e., stagflation and a repeat of the 1970s – the very calamity Wolf hopes to avoid.
