Causes of Global Economic Woes and Inflation: A Comprehensive Analysis

 

Causes of Global Economic Woes and Inflation: A Comprehensive Analysis

Published by Save to Mem · 03/07/2023

https://twitter.com/IndiaMmt/status/1589615974021738496

🪄Smart summary:

The thread discusses the causes of the current global economic problems, such as inflation, and how the pandemic has exposed the weaknesses of the current economic model. It also examines how countries like Japan, China, Switzerland, and Zambia have managed to keep inflation low. The thread then goes on to explain how the global supply chain disruption, the OPEC price increase, and the Ukrainian war have all contributed to the current economic woes. Finally, it argues that the mainstream media's attack on Modern Monetary Theory is misguided and that proactive steps must be taken to address

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What is the real causes of the present problems faced by the global economy?

What causes the sudden increase in inflation?

How is inflation low in Japan, China, Switzerland and Zambia?

Why is there renewed attack on MMT?


Pandemic showed the utter brittleness of the structure created by the economic model pursued by most of the countries. Pandemic impact will be prolonged & will not go away quickly. Even when currency was removed almost totally from circulation by India, it left a colossal impact on the economy for many years.

Pandemic brought the world to a standstill and we thought that it is end of the world as we know it; it showed how vulnerable and deficient the countries are, even in basic facilities and supplies. Also, all the ills of the present economic model got exposed explicitly and so difficult questions are going to be raised against it vehemently. As they don't have any answers and also got exposed, they're preemptively going on the offensive.

What they don't understand is that their guilt-trip is not over yet, as the pandemic induced impact will continue for years to come. They will also realize that their path will lead to self-destruction.

While the world is under the pandemic induced impact, it got worsened due to two other major global issues.

As countries are at the mercy of global supply chain totally, even for their essential supplies, when it got disrupted, obviously price rise and other issues followed.

Adding to the upward push to prices from supply constraint, the untimely OPEC opportunistic price-increase dealt a major blow to global economy, as it always does, fuel being a major component of most products and services. That, further increased the general price level.

And the Ukrainian war, an unwise & foolhardy move by many countries, brought many crises to world economy, particularly disruption to food and gas supply. Again, that adds more to the increased price in food and other products.

These three issues, which even individually can cause havoc, are presenting an unprecedented challenge to the global economy, particularly to the vulnerable people living hand to mouth.

The triumvirate is responsible for the present heightened inflation and other economic woes, which got fueled by wrong policy response from central banks and lack of right fiscal move by Governments.

Inflation is low in Japan, China, Switzerland and Zambia. Inflation in Japan is low since 1990s, irrespective of debt to GDP at nearly 250% and presently, the inflation is at 3%. Interesting to note that the policy rate is negative and the Government controls prices.

Switzerland's energy mix dependent less on imported oil & gases and the strong currency protect it from high inflation. Zambia having strong currency and trade surplus reduced its inflation from 24% to 9%, its lowest in 3 years.

How does the inflation dynamics work?

Power of currency monopoly not being understood is one of the factor.

As @wbmosler elaborates, prices paid, by the monopoly supplier of currency when it purchases and when the borrowers pays for their purchases with the bank credit, set the prices of those goods and services.

In addition, the interest rate paid adds to the cost of goods and services.

And policy rate is increased by central banks as a standard response to inflation, to discourage borrowing. But, what happens? Existing borrowing is very high compared to new borrowing.

If consumer borrowing goes down, it leads to corporate stress & additional debt.

With debt to GDP nearly 100% in many countries, Govt being the net payer of interest to the economy, as the non Govt sector interest payments net to zero, rate increase adds income to those who already have money. All these add up and worsen the inflation.

Another factor is the vast stimulus spending by many countries. MMT is categorical that Govt spending should be based on elaborate budget planning & on productive work, so that goods & services would be madea available to match the spending.

The above clearly establishes the causes behind inflation and other economic issues, but the mainstream media and all those anti poor advocates, using the pandemic induced inflation to attack MMT, is doing it at their own peril.

When we are struggling to agree on ways to address these problems and the narrative, spread by mainstream that let deprived continue to suffer, holds sway, what are we going to do if climate catastrophe strikes.

Can we take chance and leave it to the uncertainty of it? Or proactively take protective steps and also bring about full employment and price stability.




Published by Save to Mem · 03/07/2023