Martin Wolf: "Worldwide Inflation" Could Be Coming

In an interview with Yahoo Tech Ticker this morning, Martin Wolf, the chief economic commentator at The Financial Times, was cautiously optimistic about the world financial system's recovery. Cautiously optimistic, that is, about everything except the prospect for broad, global inflation.

Wolf argued that even though we currently have a "short to medium term deflation problem," if it becomes clear that "the U.S. government and British government will never mange their public debt problems," then "there could be a real flight from these currencies and that would generate, as it did in the 70s, worldwide inflation."

While economies around the world appear to be improving, he cautioned that "It's going to feel quite depressing, [with] high unemployment...for probably two, three, four years to come."

But he saw some positive signs in China. Wolf said that while China alone doesn't have the economic power to "pull the world economy out of this," the monetary figures in China indicate that their stimulus program, at least, "seems to be working."

To see the full interview, WATCH:

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Comments

[EdCoughlin]

Inflation would probably be a good thing at this juncture. We have huge national debts which would become less huge due to inflation, we have huge personal debts which would become less huge do to inflation. It would help the vast majority of Americans to have inflation in fact.

It would hurt those with significant assets yes, but not nearly as much as it would help everyone else. I would greatly prefer inflation against my student debt vs the deflation we've been having lately.

[NoMoreBailOut]

The fed is playing in re inflating the housing & finance bubble while the public willingly lets it happen (not that we could stop if if we wanted to). We're all too busy getting rich with stocks while the Wall Street crooks resume their treachery knowing they will get bailed out yet again.

good articles 4 slow news day; http://www.iamned.com

The lack of any finance or heath care reform is appalling

[BabblingBrooks]

Inflation ahead? Well, duhhhh!

Huge debt run up by government, plans for tax increases, likelihood of monetarization of debt/money printing--what would anyone expect?

That's why I refinanced mortgage from a variable rate to a fixed.

[Rayme]

Worldwide inflation, translation: Worldwide currency crisis.

[4TJefferson]

World wide INFLATION?! On which world? Get real. First, deflation has to stop then we can worry about inflation.

[Ivan B Good]

Once these banks start giving out easy credit again we will start feeling the inflation.. I guess we'll have to wait and see what the easy credit is for this time around.

[FoonTheElder]

Economists have predicted six of the last two periods of high inflation.

[4TJefferson]

That is because the rethugs always start talking inflation when a Democratic President is in the White House.

[jsarets]

There won't be excessive consumer price inflation in the foreseeable future for two reasons:

1) Labor productivity continues to increase explosively. This means that the portion of GDP employing labor is decreasing relative to the portion that employs capital or property. Therefore, the amount of purchasing power chasing each unit of productive output is decreasing, driving down the price of consumer products and driving boom-bust cycles in the price of investment products.

2) Reagan was right. Deficits don't matter, but only for the United States, and only if there remains a healthy demand for oil and a healthy fear of our military around the world -- conditions that are almost certain to persist for some time. Most people are unaware that all international oil trade must be conducted in U.S. dollars, a global trade embargo enforced by the U.S. military since 1971. Demand for dollars is driven by demand for oil, permitting us to run huge fiscal and trade deficits without excessive devaluation of our currency against imported products.

The market values of investment products will be increasingly volatile as capital relentlessly devalues labor, but for the same reason, the only direction that consumer prices can go is down. This is capitalism: low prices minus high profits equals low wages, requiring lower prices, etc.

[PhilipB]

Deflation.
There is no demand. The massive foreclosure market will mean a deflation market for years to come. The banks are holding on to many foreclosed residential properties, trying to create an artificial demand, and the commercial real estate market has taken a hugh hit. Ghost shopping malls and for lease and for rent and even for sale properties have flooded the market in the commercial sector.
Credit card companies have jacked their interest rates up so much on good customers, that wise consumers will not trust credit cards this upcoming holiday season. Even if you have a good rate now, would you trust the credit card companies enough to use that card? and the uncertainty of the market will make wise people spend less.
deflation. stagflation and all the rest of it. with inflation assumes demand. What demand?

[Ping]

Bernanke already has a plan in place.

[northof55]

It is amazing how people make statements about inflation without a clue. Here are some hints.

1. The money borrowed from the Chinese is already in circulation. It can't inflate if its already counted in world GDP. Basically, all thats being done is re-cycling dollars. This has been done with petro-dollars for years. We just print it and give it back. They put it back in their reserves.

2. Printing money NEVER causes inflation. The only reason to keep the money supply low is to starve the serfs. There is never ever enough money in circulation to pay off all debts. Not enough money in circulation keeps power in a few hands. Plus, cheap wages are still driving down inflation. US workers are taking wage cuts. No inflation there.

3. Not enough money in circulation to pay all debts means there is a shortage of dollars and the dollars value should sky rocket. But, a smart economist knows a dollar is only a medium for the exchange of goods and services so a dollar has zero value anyway. The value is your labor and the value added to the product you buy.

4. Only the ability to raise prices can cause inflation. Econ 101. Prices are still falling. Look at natural gas, oil, steel, copper. All inputs have fallen.

We have lost nearly a trillion off US GDP. How can we have inflation. You alarmist need to go back to school.

[wilsonveteran]

I will have to disagree with you. If printing money does not cause inflation then why did Germany have such run away inflation in the 1920's after printing money to pay off war reparations. I remember my Grandmother, who lived in Berlin during that time, tell me it was cheaper to burn money than to pay for coal.

In your thinking there can never be inflation. So what do you think causes inflation. What caused the double digit inflation during the Carter years.

[Ping]

The price controls that Nixon instituted at the end of his reign as President.

[wilsonveteran]

Try reading this on inflation

http://www.yourdictionary.com/dictionary-articles/Definition-of-Inflation.html

[northof55]

In Germany there was a shortage of goods allowing higher prices. One of the reasons the US went into the great depression is the shift of gold reserves to Europe to tie currency to a standard and stabilize Europe. This reduced the money supply in the US. The Fed didn't know enough to run a floating currency contracting the monetary supply and causing the great depression.

The Carter years were caused by three things and he was blamed for republican economic shortcomings. And, it can mostly be blamed on Nixon. First in 1971 he took the US off Bretton Woods. The dollar deflated thirty five percent within two years. Next, the Saudis were only getting $3 per barrel for oil. Oil prices were set by the Texas Railroad Commission and oil had been $3 for fifeteen years. With a deflated dollar they were getting screwed. The middle east embargoed oil and the price went to $17 by US agreement to stop the embargo (remember petro-dollar recycling) excelerating inflation. Also, Vietnam dollars due to guns and butter were in circulation.

Those three things set off 1970s inflation. Remember Nixons price freezes, frozen dollar and Fords WIN buttons (Whip Inflation Now)? Further, I don't buy the textbook or dictionary explanation of inflation. The suppression of money supply only benefits the ultra rich. Rising prices of goods is the cause inflation. Commodities have crashed, we're printing loads of money, yet no inflation.

Please read "Secrets of the Temple" and "Debt Virus."

[PhilipB]

Brilliant comment, and fanned!

[confidance government]

So you are saying money supply has no effect on prices???

I think any sensible person would disagree.

[jsarets]

Monetary inflation primarily affects the prices of investment assets. Although inflation in commodity futures can cause consumer price inflation, consumer prices are largely independent of inflationary boom-bust cycles in asset markets.

Any sensible person would agree that since labor productivity (GDP divided by earned income) is increasing everywhere, particularly in the developing world, the amount of purchasing power chasing each unit of productive output is decreasing, putting downward pressure on consumer prices.

[northof55]

Is printing money having an effect now? No.

Banks have a monopoly on money. Money is artificially in short supply even during good times so you have to go to the bank and borrow at interest. The banks work on fractional reserve so they create money. 10 to 1 or whatever the requirement is. Then they charge you for the money they create. There is never ever enough money to pay off all debts, so someone always loses in our economy. Don't worry, the Fed will pull the rug out when Wall Street whines.

The dollar or any other currency shouldn't be traded as a commodity. There is no value. The value is what you exchange the currency for. I have a loaf of bread, I want cookies, not bread. I want to trade it for cookies, the cookie baker don't want bread so I sell my bread to someone else and pay cash for cookies. Yes, its that simple. Only your labor and the product are worth anything. Dollars are held to exchange that output.

Trading dollars is a game. Inflation only comes because of price increases mainly due to speculators and shortage of supply.

[wilsonveteran]

For all of those that say we should put away our credit cards and spend wisely I hate to tell you that does not cause inflation. I am not for out of control spending by consumers but it is out of control spending by government that causes inflation. Obama has been told that with all his spending and printing that this was coming and now we see signs that it is. But even with this he will want to spend trillions more on health care we cannot afford. Thank you progressives you might get what you want a collapse of the U.S. economy if not the world economy.

[OneTop]

Are you sure about that ?

Government spending is dwarfed by private spending in the U.S.

I believe that over 70% of GDP is tied to personal consumption. No doubt the government needs to control and manage what it spends, but at it's present rate, inflation shouldn't be much of a worry.

[wilsonveteran]

Inflation happens when there are to many dollars chasing to few goods. When the government puts this amount of money into the economy it causes inflation always has always will. When the government prints money as it has it devalues the dollar. Always has always will. Right now the consumer does not have to many dollars, unemployment, the government does from all its borrowing. Once again inflation. When you look at Germany in the 1920's they printed a lot of money to pay off war reparations, thus their inflation and the eventual collapse of their economy and government.

[rememberthepoor]

So many economists seem to be anxious for that inflation to hit. Sorry to burst their bubbles, but look for deflation for a long, loooong time.

[wilsonveteran]

And you believe this because.....

[aspertame2]

I'm thinking more like chaos as inflationary factors (many scarcity based) and deflationary factors pull people in both directions. Healthcare - inflation. Salaries - deflation. Homes - deflation. Low-to-middle-end rentals - inflation. Energy, produce - inflation. Most discretionary retail crap - deflation. It'll be a mess in ways not really familiar even to historians who chronicle America's First Great Depression.

[oldww2guy]

"may,could ,it's possible,let them fail,perha­ps,questio­nable...."

[cjt1957]

Shhhh, don't tell Obama....

[outnow]

Martin Wolf predicts short- to medium-term asset deflation, flight out of British and American currencies, and then massive inflation worldwide. He was against the bank bailouts and spoke out six months ago but he says that at least everyone can count on the fact that no too-big-to-fail companies will be allowed to fail. The bad news is that the British will never consider getting out of debt.

IMHO,the time for being an Anglophile is over. London and Washington are too co-dependent to be friends any more, as in the Days of Wine and Roses. Each enables the other into wars of choice and empire-building through neoliberal policies of predatory lending. This is all based on the toxic fractional banking system so dearly loved in England and hated by our Founding Fathers. The British all but founded the Fed for us. They showed us the way into a debt-hell created by their banking system.

Last year I joked with my European friends about reading the Financial Times. They said "Are you a big investor?" I said, "No, but inflation is good news if you are in debt!" - only half-jokingly. The US iin debt for years to come and there will be fewer jobs. Germans flinch when you talk of hyper-inflation.

[noesis]

very well said.