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Low GDP growth + high prices is different than the 1970s stagflation, but is stagflation nonetheless and MP3

 MP3 the third-generation monetary policy that now prevails worldwide. MP3’s key feature is closely coordinated monetary and fiscal policy.

MP3 creates demand without creating any supply.

Under MP3, governments and central banks responded to COVID by sustaining incomes without sustaining supply. The result was rising demand relative to supply, and here we are.

So consumers, unable to spend on services, demanded more goods—roughly 15% more than our logistical infrastructure had ever produced and delivered. Et voila, supply shortages. Throw in supply chain problems and you get inflation in goods.

My friends at Denmark’s Nordea Bank keep a sharper eye on US inflation than some Americans do. Their latest outlook is more than a little concerning


But the real threat is housing prices. Shelter inflation has looked subdued in this cycle because of CPI’s bizarre methodology.

Unrealistic housing price assumptions gave Alan Greenspan, Janet Yellen, and now Jerome Powell room to keep rates low. As I said last week, OER is broken. Properly accounted for, shelter costs would have inflation at 10% in a very public manner no one could dismiss as “transitory.”

Higher energy prices lead to higher fertilizer prices, since fertilizer manufacturing uses large amounts of natural gas. Either expensive fertilizer or lack of fertilizer will mean higher food prices.

Neil Howe is my guru for all things demographic, Neil says the overriding #1 issue is labor force participation, not unemployment. 

That last $1.9 trillion stimulus bill was simply an inflation bridge too far. The intentions were good, but there are unintended consequences as it was coupled with QE and zero interest rates.

Low GDP growth + high prices is different than the 1970s stagflation, but is stagflation nonetheless.

John Mauldin November 19, 2021


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