Inflation is traumatic for the Fed and existential for the eurozone

US assets are priced for perfection. Credit spreads are waver-thin.

The ratio of US stock market capitalisation to GDP – the Buffett indicator –  reached a record 210pc in November, twice the pre-Lehman peak of 106pc peak. 

“Market participants, rightly or wrongly, believe that the Fed has their back and will retreat if asset prices fall,” said Raghuram Rajan, the orthodox ex-governor of India’s Reserve Bank. 

The Bank for International Settlements has long warned that this would happen if central banks (it meant the Fed) did not break the addiction, and did not act before debt levels had become unmanageable

ECB  is in an even bigger mess. Inflation has reached 4.9pc in the eurozone, and 6pc in Germany, a level that starts to breach the unstated contract of monetary union – which is that euro should be as stable as the Deutschmark, and the ECB must never be hijacked by a Latin debtors’ cartel. 

Ambrose Evans-Pritchard Telegraph 2 December 2021

https://www.telegraph.co.uk/business/2021/12/02/inflation-traumatic-fed-existential-eurozone/

Raghuram Rajan, inflation now “more than transitory.”

https://englundmacro.blogspot.com/2021/11/raghuram-rajan-inflation-now-more-than.html