Deutsche Bank issues dire economic warning for America
NOTE – Recall inflation under Jimmy Carter – “In spring 1980, inflation at an 18 percent rate for the first quarter of the year, with home mortgage rates above 14 percent and with some farmers being forced to borrow against their summer crops at a 25 percent rate” (The San Diego Union-Tribune) Presidential busts: The runner-up: Jimmy Carter (1977-1981)
As the world economy awakens from the 15-month slumber caused by the pandemic, Deutsche Bank has launched a series of research articles to spark debate and discussion about pressing post-pandemic economic issues.
On June 7, Deutsche Bank issued its first report of the new series, titled “Inflation: The defining macro story of this decade.”
According to the report, “US macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.”
That could be deemed an understatement considering that the U.S. economy is already experiencing “uncomfortable” inflation.
Consider: Based on the most recent inflation report from the U.S. Bureau of Labor Statistics, “In April, the Consumer Price Index for All Urban Consumers rose 0.8 percent on a seasonally adjusted basis; rising 4.2 percent over the last 12 months.”
An annual inflation rate of 4.2 percent is more than “uncomfortable.” But the looming threat of inflation seems to have fallen on deaf ears in Washington, D.C., over the past year, as Congress has supercharged spending to levels unseen since World War II.
As Deutsche Bank notes, “The current fiscal stimulus is more comparable with that seen around WWII. Then, US deficits remained between 15-30% for four years. While there are many significant differences between the pandemic and WWII we would note that annual inflation was 8.4%, 14.6% and 7.7% in 1946, 1947 and 1948 after the economy normalised and pent-up demand was released.”
If the U.S. economy descends into an inflation spiral like that experienced after World War II, we could be on the brink of excruciating economic pain.
However, the profligate spending by Congress is only part of the problem.