How Long Can the Great Global Reflation Continue?
Every now and again, it’s good to take stock of the Great Global Reflation that has been marching higher since 2009, over eight years ago. Is this Great Reflation running out of steam, or is it poised for yet another leg higher?
Smith says that nothing has worked as the Keynesians expected. Instead, state/central bank measures that were supposed to be temporary are now permanent, and the expansion of private-sector debt has failed to trickle down to earnings.
The Keynesian solution—borrowing from future earnings to bring consumption forward—has expanded consumption at the cost of enormous increases in debt throughout the economy, which has exacerbated income-wealth inequality and declining real incomes.
Eight years of following the Keynesian plan have failed spectacularly, and made the economy even more vulnerable and fragile, as more and more future income must be devoted to servicing skyrocketing debts.
It is obvious that there are deep structural problems in the economy that inflating yet another credit/asset bubble won’t fix. Clearly, the real-world economy does not function like the simplistic Keynesian model.
Given the extraordinary failure of both Keynesian stimulus and private-sector credit growth to create a self-sustaining cycle of expansion whose benefits flow to the entire workforce rather than to the top few percent, what can we expect going forward? Can we just keep tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?
In the near term, is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?