What’s Worse than Inflation? Depression + Inflation
The comments below are an edited and abridged synopsis of an article by Charles Hugh Smith
What’s worse than inflation? Depression plus inflation, and that’s where we’re heading. Central banks are trying to reduce inflation by crushing demand. This works in eras of abundance, but not in eras of scarcity when supply constraints drive inflation.
If essentials (food, energy, water) are supply constrained, monetary tightening won’t reduce inflation. Hiking interest rates to crush demand won’t increase supplies, it only destabilizes who gets their fill (the rich) and who doesn’t (everyone else).
Depression is on the cards if central banks continue to ignore inflation. They can trigger a depression by hiking rates and tightening financial conditions, but this won’t end our need for essentials soaring in price due to scarcity.
Central banks crushing demand won’t reduce wages either, as workers need a living wage or there’s no point showing up.
The highly unpopular solution to supply-constrained inflation is rationing so that everyone gets enough to get by regardless of wealth or income. Without rationing, the rich soak up scarce supplies with their wealth. Everyone else either does without or is pushed into insolvency, generating an instability that will threaten the integrity of the system the wealthy control.
If central banks think a depression will reduce supply-constrained inflation, they will be proven wrong. The central banks’ solution to depletion and scarcity—impoverishing the already poor and laying waste to the economy to reduce demand—won’t fix supply constraints caused by forces beyond the reach of financial manipulations.
If markets controlled by the rich are allowed to distribute essentials, the result will be civil disorder and the overthrow of regimes by those left without while the wealthy squander resources because they have the financial means and political power to do so.
What’s worse than inflation? Depression plus inflation. What’s worse than depression plus inflation? Depression plus inflation plus civil disorder triggered by mass impoverishment and wealth inequality.