Magic money is blinding us to the dangerous reality of inflation

Name: China's corn prices remain high amid supply-demand imbalance
Uploaded: 2021-01-31T19:30:09.000Z
Duration: 57 s
Description: China's corn prices remain high amid supply-demand imbalance

Signs of inflation are everywhere, from stocks, bonds and real estate to goods and services. Yet analysts and fund managers continue to argue that asset inflation is nothing to be feared

Reading Time:3 minutes

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A picture of a money tree outside a currency exchange shop in Bangalore, India, in 2013. Photo: AP

Anthony Rowley

Published: 3:30am, 1 Feb 2021Updated: 3:54am, 1 Feb 2021

There was once a magic money tree that bloomed in never-never land. It bore fruit of golden apples and silver pears all year round. No one wanted for money as they could pluck gold and silver from the tree whenever they wished while the bank of never-never land tended the tree carefully.

But, in time, the tree bore more apples and pears (“funny money”) than the supply of goods, and prices began to rise. The people of never-never land had, by that time, lost all sense of the value of money and the monetary system began to collapse.

The bank then pruned the magic money tree, after which suffering and hardship ensued until the balance between apples and pears, and the supply of other goods was restored. This became known as the MMT (magic money tree or modern monetary theory) era, or a “time of madness”.

Is the day of reckoning when the blight of inflation finally destroys the value of monetary apples and pears at hand again now? Inflation is supposedly a long way off as interest rates continue to hover around zero.

But there are disturbing straws in the wind as the damage from the Covid-19 pandemic (and Donald Trump’s trade wars) on the goods supply chains begins to drive up prices, even while central banks and governments continue to hand out free golden apples and pears by the cartload.

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China's corn prices remain high amid supply-demand imbalance

As Reuters reported recently, “US manufacturing activity surged to its highest level in nearly 14 years in early January, but bottlenecks in the supply chain caused by the Covid-19 pandemic are driving up prices and signalling a rise in inflation in the months ahead.”

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Magic money is blinding us to the dangerous reality of inflation

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} Signs of inflation are everywhere, from stocks, bonds and real estate to goods and services. Yet analysts and fund managers continue to argue that asset inflation is nothing to be feared

Signs of inflation are everywhere, from stocks, bonds and real estate to goods and services. Yet analysts and fund managers continue to argue that asset inflation is nothing to be feared