Governments are throwing the kitchen sink at this, and they’re not asking for it back.
So the world has changed pretty quickly.
And we’re not going back to the way things were.
And if I’ve got one prediction for you it’s that our economic crisis response will quickly become the new normal.
Get used to deficits. Get used to money printing. Get used to the government becoming a much more active player in the economy.
Now, as you know, I’m not one to toot my own horn. (Nah, just kidding. I give it a toot any chance I get. Parum parum pa pahh!)
But I called this.
On the the 28th of March last year, I wrote the following:
“We’re on the brink of seismic shift in the economy. It’s going to be huge. Mark my words. In 18 months I’ll be digging this up and telling I told you so.”
Well, guess what. We’re here. A little ahead of schedule, but we’re exactly where I said we’d end up.
Massive and perpetual deficits, money printing and a super-active government.
It is true that we’re calling these things our ‘emergency response’. The cute idea is that we’ll wind it all back once the crisis passes.
But that’s not going to happen. Because these policy measures are not just something that were born out of crisis.
These things were coming regardless. The crisis just brought the schedule forward. (About six months by my calculation.)
But the basic gist is that the economic orthodoxy has undergone a quiet revolution.
We used to believe that money printing always and ever lead to inflation, if not hyper-inflation.
That is, money printing is always bad news.
But then we had some off-charts money-printing in the years that followed the GFC.
The US Fed pumped $4 trillion into the US and global economy.
(It never came back.)
And despite the received wisdom, all that money printing never did cause inflation.
Economists were shocked.
But that was only because it didn’t cause inflation in consumer prices – where we normally look for inflation.
It did however, cause inflation in asset prices. All that money flooded asset markets. The US stock market tripled. The Australian property market boomed.
So the economic wisdom changed. Money printing didn’t cause inflation in consumer prices. It caused inflation in asset prices.
And the financial elite, who just happen to own a lot of assets, said, “Actually, we’re kind of alright with that.”
And now here we are. The Fed is printing money at a faster rate than they did during the GFC. Australia is about to run the most mammoth deficit in history.
And the financial elite are alright with that.
You don’t hear anyone complaining do you? You don’t hear anyone talking about inflation, do you?
Because no one cares. Monetarily sovereign nations will print and spend. Asset prices will boom. And if governments try to wind back their role in the economy, asset prices will fall, and no one wants that.
This is the new normal.
So make no mistake. Things have changed. I’m not saying they’re better. But they’ve definitely changed.
There’s no going back.