Seremos capaces cuando salgamos
de estos envites iniciales, poder afrontar una inflación mayor… Lo dudo, nos
pillará mal. Deberían tener cuidado con regar de dinero a todos…
La crisis del virus empezó
siendo una crisis de oferta (no había productos suficientes), para pasar
enseguida a una de demanda (nadie demandaba nada) y se mantiene la crisis de
oferta (no se puede fabricar ya que no hay productos intermedios, hay
desabastecimiento para producir).
Si a esta crisis se le aplica
políticas monetarias expansivas, no debería afectarles mucho, ni beneficiarles
tampoco (tenemos una dilatada experiencia de compra de bonos por los bancos
centrales que solo ha supuesto un alivio a los bancos privados y eso que se han
seguido desplomando…)
Pero el riesgo de tomar
políticas fiscales masivas (tipo las de EEUU de darle dinero contante y sonante
a los ciudadanos) es que con una oferta inelástica, harán subir los precios…
(se explica muy bien en el primer gráfico)
Deutsche Bank: Helicopter Money Will Be
"Disastrous" And Will Lead To Hyperinflation
Now
that helicopter money has finally arrived, and bizarrely has brought with it
that blast-from-the-past idiocy that is the trillion-dollar coin - which does nothing more than
remind the population that money, like any other consensus construct, is just an illusion and depends on "faith and
credit" and an increasinlgy grotesque one at that reliant on such "in
your face" gimmicks as minting platinum coins to bailout the world - the
discussions of what the monetary endgame (with even deflation god Albert
Edwards admitting that his iconic "Ice Age" is about to melt under
the red-hot heat of paradropped cash) will look like have begun in earnest.
Doing it part to kindle this debate, no
pun intended, are Deutsche Bank strateigst Oliver Harvey and Robin Winkler who
have published a report covering the two aspects of the helicopter money
debate. And since we are confident that readers can find the happy ending
version on countless other pro-paradrop forums, typically those run by
socialist "island-dwelling traders" who have never actually traded
(and their drug-delivery skills it turns out were also dismal) and who have no
concept of how money or credit actually works, we will focus on the one that
captures accurately what will happen on short notice: hyperinflation.
So for everyone
curious what the hyperinflationary endgame looks like, here it is, courtesy of
DB's Oliver Harvey.
Helicopter money would
make the coronavirus a lot worse
The economic policy response to the
coronavirus looks very similar to the last financial crisis. Central banks have
responded with liquidity for the private sector through swap lines with banks
and purchases of commercial paper from corporates and have lowered the cost of
money through interest rate cuts and quantitative easing. Governments are
announcing sizeable fiscal packages which will provide businesses and
households with direct cash injections. Today, for example, the German
government pledged EUR 100bn, or 3% GDP. The US has announced a similar sized
fiscal stimulus. Some have called for the government to go further, and
act as a buyer of last resort for businesses, for example.
The problem is that this crisis is very
different from 2008, or for that matter 1929, where much of today’s macro
playbook was written. 2008 was a classic demand shock caused by a loss of
confidence in the banking sector. In a demand shock, fiscal and monetary tools
should be used aggressively to bring confidence back. In Paul Krugman’s classic
formulation of the Washington Baby Sitters Co-operative, for example,
prospective babysitters were worried about using up their supply of
baby-sitting tokens to go out because babysitting opportunities were becoming
scarcer. This led to further scarcity in babysitting opportunities. The cycle
was only broken by the Co-Operative issuing more baby-sitting tokens, which led
to babysitters feeling confident about spending them again. This is a neat
analogy for how monetary stimulus helps during a credit crunch.
Coronavirus is not a demand shock,
however. It is first and foremost a supply shock which is now spilling over to
demand. Consumers did not initially stay away from shops and restaurants
because they were worried about their future economic prospects, but because
governments told them to stay at home. Holidays are not being canceled to shore
up household finances but because countries have closed their borders. Workers
have not been furloughed from factories because of insufficient orders but
because employers are worried about the risk of spreading disease. It is of
course true that the mass unemployment caused by these measures will result in
a dramatic drop in aggregate demand. It is also true that the confidence
effects caused by such measures is likely to result in cash hoarding by
households and businesses – indeed such behaviour is in evidence in markets at
the moment. But this is the second order response to a first order shock to
aggregate supply.
Understanding this has very important
implications for the policy response to the coronavirus. It should worry us
that policymakers and academics think providing massive stimulus is the
solution. This
is because policymakers appear to be attempting to shift demand back to where
it was a couple of months ago, at the same time as holding supply fixed. To
put it another way, if
the government tries to keep spending at levels before lockdowns began, while
at the same time keeping lockdowns in place, there will be simply more money
chasing after significantly fewer goods and services. The result of this will
be inflation, and a lot of it.
This might seem like an absurd argument
given that market inflation expectations – the price of inflation linked bonds
– have fallen since the crisis began. But, it is perfectly consistent to say
that even though this crisis ultimately originated with a supply shock, the
market has up until now expected demand to fall somewhat more in response. What
matters is that at present supply is inelastic – unlike in traditional
Keynesian formulations – because
while the government might be handing out $100 dollar bills it won’t be
allowing workers to work regular days, restarting flights or reopening
factories until the virus subsides.
In figures one and two we present a
graphical representation of this argument. Figure one shows a stylized version
of the present equilibrium. The demand curve has shifted left and become
vertical (inelastic). The demand curve has shifted left to a greater extent,
meaning that the present equilibrium is likely to be slightly deflationary (p2
and i2). In figure two, the effect of fiscal and monetary stimulus shifts the
demand curve back towards its position before coronavirus but the supply curve
remains fixed (p3 and i2). The result is a higher price level.
Those
worried about deflation might argue that given bleak economic prospects, cash
handouts will just end up being saved by workers and businesses. But saving is
all about expectations. The moment people believe prices will begin to rise in
the shops for essential goods, workers will start spending those handouts.
Unless the volume of goods and services available to buy increases again, this
will in turn translate directly into higher prices.
A similar point can be made about the
labour market. There are a limited amount of jobs that can be done from home.
According to our DB dig suvey, for example, suggests that only 55% workers will
be able to work from home (figure 3). This means the supply of labour has been
restricted by the coronavirus. Keeping employees in their jobs, and paying them
the same wages, for doing nothing – as the Governor of the Bank of England has
suggested – will result in a massive rise in unit labour costs. Presumably the
government will compensate employers for doing so. But again, this money has to
go somewhere – namely higher prices. In effect, there has been a huge upward
shift in the Phillips curve.
Two
caveats are important. As the coronavirus has created a massive credit crunch
due to the sudden evaporation of corporate revenue, it is appropriate for the
government to provide enough liquidity for businesses to keep them afloat for
the duration of the crisis. These businesses were profitable before
restrictions were imposed and can be again when they are eventually lifted.
Similarly, it is justified for the government to mitigate the impact on living
standards for the recently unemployed through benefit payments. As we
acknowledged, the shock to demand is likely to have been greater than the shock
to supply at this stage.
What would be disastrous is if governments embarked on
New Deal style spending program via monetary financing at a time when it is
imposing stringent supply constraints on the economy. The result may be
hyperinflation, and end up doing more harm to people's living standards than
nothing at all.
In the wake of the 2008 financial crisis,
those that warned about the inflationary risks of QE and fiscal expansion were
given a tough time by most professional economists – and rightly so. They
predicted that inflation would result out of an expansion of the monetary base
when the economy was suffering from a deficit in aggregate demand. Perhaps
scarred by their experience, or perhaps due to the distressing human tragedy
that is currently unfolding, they have been notably quiet this time around.
That is unfortunate because, as the saying goes, policymakers always solve for
the last crisis.
We are worried that the real pain trade
for markets – and the economy – is the long awaited return of inflation.
Por lo que es muy importante no
sobreactuar y ver las consecuencias de las medidas fiscales que se adopten…
Pocos han sido los días para
que las expectativas de inflación futura se ajusten al alza. Eso que nadie
vende nada. Pero no, sabemos que los excesos de dar dinero a tolón a la gente
genera inflación:
Expectativas de inflación
(5years SWAP) comparado con Europa:
Algo falla…, y es el temor a
que los excesos de política monetaria y fiscal de estos días derive en una
subida brusca de la inflación…
Abrazos,
PD1: Tenemos
indulgencia plenaria cada día, que se puede aplicar por alguien. ¿Cómo se gana?
Para lo cual es tan fácil como
asistir a Misa por Internet o la televisión, hacer una comunión espiritual, y
hacer una confesión previa a la presencial como nos dijo el Papa hace unos
días.
