"Ice Age" of low rates has ended
The post-COVID shift from Wall Street-focused monetary easing to Main Street-focused fiscal expansion has permanently ended the multi-decade paradigm of structural disinflation.
The argument
The guest argued that while early quantitative easing merely inflated financial assets, the pivot to direct fiscal transfers triggered structural consumer price inflation. Furthermore, democratically elected governments face immense political pressure that prevents them from rolling back fiscal deficits even when capacity constraints are reached.
The thesis, stress-tested
✓ What validates it
- ✓US budget deficits remaining near 7% of GDP during low unemployment
- ✓UK gilt yields sustaining multi-decade highs
- ✓Five-year inflation swaps trending upward
▸ Risks discussed
- ▸Electorates accepting fiscal austerity without a severe crisis
- ▸Rapid technological deflation offsetting fiscal expansion
Hear it yourself
"And Tony Dye then who was head of Phillips and Jew Asset Management who had become bearish too early, value a bit like Jeremy Grantham, value orientated Yeah. And his coconspirator out in Chicago, also known Brinson, who both had come under the umbrella of UBS. I remember him saying to, the head of equities at Kleinwartz, well, I totally agree with what Albert's saying, but why haven't you fired him? Because that's what happens to most bears or most analysts who get it wrong, not on the bullish side. But if you if you're an economist and call a recession on the sell side and you're wrong, you're usually out pretty quickly."