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We may face the worst policy-induced economic calamity since the Smoot-Hawley tariffs triggered the Great Depression

 We are facing demand-driven inflation as a consequence of misguided monetary policy and misdirected fiscal stimulus. 

But even if not calamitous, it will be bad... Today, I’ll describe what I think will happen over the next year or so. I rarely make short-term forecasts because I’m usually early. Reaching the major turning points takes longer than we think.

The forthcoming changes will build on previous policy changes that were ineffective at best and probably outright harmful.

The Federal Reserve is not the main cause of the inflation we see right now. Yes, they’ve pumped up the money supply, but most of the new money is trapped in the financial markets. It can’t escape unless banks lend it to someone. Their willingness to do so has been shrinking, not growing.

Fed’s forthcoming policy change will have little or no effect on CPI inflation. They didn’t drive it up, nor will they make it go down. But that doesn’t mean it will have no effect. The taper may remove some of the froth from stock and real estate prices. 

John Mauldin 29 October 2021


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