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is not going to be a short and shallow recession it's going to be severe one but then they have a crush on the stock market a crash of the bond market with interest that's going much higher a crash of credit markets with the interest rates on private loans Rising significantly and that economic and financial crisis is going to be so damaging and as I said if you cannot raise taxes cut spending you have to use the inflation tax in the UK and U.S and Europe we're borrowing our own local currency and if you had the bout of unexpected inflation inflation can reduce the real value of nominal debt at fixed interest rates of long duration but its attacks were taxing creditors and Savers to redistribute incoming wealth to those where borrowers and debtor and is that a tax that actually is not even decided by a parliament or by political government but is decided by the central banks so I do believe that actually even the rise of debts private and public we are in what the economists call a debt trap there's so much problem in public that there will be an incentive to try to wipe it out with a bout of unexpected inflation we don't want to raise taxes enough we don't want to cut spending enough so we're going to use the inflation tax to resolve this problem is a form of default however it's a capital levy on Savers and creditors and alls who hold public and private debt increases of inflation we've had in advanced economies like the UK Europe and us is driven in part by what people refer to as being bad policies lose monetary fiscal and credit easing during the covet crisis too much for too long but then we're also had a series of negative aggregate supply shocks that reduce growth and increase the cost of production the first one was the impact of kovid on production of goods and services on the supply of labor and on Global Supply chains the second one was the impact of the Russian invasion of Ukraine on commodity prices oil natural gas food fertilizer Industrial Metals and three the zero covet policy of China has led to further Global Supply bottlenecks physical combination of bad policy and bad luck in the case of the UK there was also self-inflicted wound because the decision of brexit reduces potential growth from about two percent to maybe one and a half it increases the cost of production you have less migration you have frictions in international trade and therefore it's also a stuck flationary process so on the supply side we have these shocks but over the medium term there are other shocks that are medium term stagflationary the globalization reassuring of manufacturing dry Coast countries for ensuring agingal population restriction to migration decoupling between U.S and China global climate change pandemic cyber warfare weaponizing our currencies as a tools of national and foreign policy a backlash against income and wealth inequality these are all factors that are more medium term they're all stagflationary they reduce potential growth they increase the cost of production on the supply side on the demand side central banks are saying we're going to fight inflation at any cost and we're going to go back to two percent primaverio they're not credible they're going to Blink they're going to wimp out because if they try to raise interest rates to fight inflation not only they cause a hard Landing a recession and it's not going to be short and shallow recession it's going to be severe one but then they have a crush on the stock market a crash of the bond Market of interest is going much higher a crash of credit markets with the interest rates on private loans Rising significantly and that economic and financial crisis is going to be so damaging they're going to Blink they're going to monetize the deficits and as I said if you cannot raise taxes cut spending you have to use the inflation tax I usually say I'm not Dr Doom I'm not a realist but of course is not as catchy to be called doctor realist there are some upside down some downside unfortunately I feel that for the last 20 years of being kicking the can down the road we're putting our head heads under the sun like ostriches with and we're not addressing the fundamental threats economic monetary Financial political geopolitical technological environmental health there are major threats that are all connected with each other and says slow motion train wreck there is no free lunch for any problem you have to incur short-term costs to improve these threats over the medium long term and the political economy of reforms and of pain is that very few people are willing as governments and countries and politicians to accept the short-term pain for the long-term benefit because those politicians are not going to be in power so there is a bias about kicking the can down the road
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