Каморка

Will this actually happen? It is hard to say but it seems likelier with each passing day. We think formal recognition of true inflation is the only way out. To the extent that policymakers begin to understand this, they could either administer the drug in a willy-nilly fashion, which clearly risks hyperinflation at a time when all of society is woefully over-leveraged or take control of the situation and mandate inflation by decree as a one-time shock to the system. The latter solution would be politically expedient and make policymakers appear to save the day. Raising interest rates and contracting the Fed’s balance sheet would indeed be the purest solution that would, eventually, right the ship and make the economy more sustainable. However that would engender a period of broad economic hardship, and so we place close to zero probability on its being pursued as a policy objective. We would now give better odds that there will be a managed US dollar devaluation vis-à-vis gold than a protracted tightening or draining of the monetary supply.