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Quantitative Easing
Opinion
Anthony Rowley
Anthony Rowley

Macroscope | Why the global inflation surge could signal an economic collapse

  • The link between inflation and asset price collapse or debt market implosion might have been forgotten, but it is still there
  • Policymakers cannot afford to ignore the increasingly shaky state of the foundations on which the global economy rests

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Petrol prices on display at a service station in Visalia, California, on November 16. The global surge in inflation continues apace, with the US seeing its largest year-on-year increase since 1990 in October. Photo: AP
Anthony Rowley
Those who argue that the current trend of global inflation is a “transitory” phenomenon are failing to see the phenomenon in the wider, more worrying, context of what it presages for markets, financial institutions and the global economy.

To illustrate, anyone walking down a street of high-rise buildings during an earth tremor when the buildings begin to sway need not panic, alarming though the experience can be, provided the buildings have solid foundations. Tremors are often transitory and do not always portend major earthquakes.

But if some of those figurative skyscrapers are houses of cards or are built on sand, everyone had better run for their lives. This will be no transitory tremor but a shock that could lay waste to the entire city.

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Thus it is now with the current bout of inflation, running at a 30-year high in the US and at long-time highs elsewhere. This could be just the passing tremor policymakers are hoping and praying for, but they cannot afford to ignore the shaky state of the soaring edifices around them.

One of these is the stock market (Wall Street and others), whose record high valuations are built on a relatively small base of corporate earnings, or “rich” price-to-earnings ratios in market jargon. Any inflation tremor that does not pass quickly could easily turn into a crash there.
Another is the skyscraper symbolising the colossal amount of debt that has accumulated in the global economy at household, corporate and government level since central banks began printing money on a scale that gives new meaning to the term mass production. This tower of debt is vulnerable to collapse now that rumblings of inflation are growing louder by the day.
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