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IPFS News Link • Economy - International

A "Global Inflationary Depression" Is Very Possible

•, by Bruce Wilds

This has only postponed the collapse of the financial system and economy. Still, many investors are basing their investments on more intervention from central banks and governments to pull another rabbit out of their hats. 

Global inflationary depression is not a mix of words we normally see placed together. To those finding this notion unacceptable, we could reframe this as a stagflation era of reversion. Moving us towards the depression part of this scenario is the fact many economic watchers are predicting outright deflation pointing to a huge slowing of the economy. Currently, the biggest source of demand comes from governments. Demand from working people and private sector growth is on the wane. If you remove all the money being spent on Covid-19 vaccinations, tests, and a slew of inefficient spending that has created little long-term benefits to the economy the GDP would fall like a stone.

We seldom have depressions but instead tend to roll through mild recessions, however, what we face today may be far more severe. In the past, times of falling economic activity have generally been deflationary as defaults rise but this time if inflation does not abate the result may be very different. Part of this is rooted in the fact that in the past many events tended to be regional rather than global. Today, economies have become more interconnected the resulting codependency presents an increased possibility of problems spreading across the world.

The money flowing from the central banks and governments has created the so-called "pent-up demand" we have been hearing about and the constant predictions of solid GDP growth. In truth, capacity utilization and productivity are down even while trillions of new dollars pour into the system. This is the logic behind saying a depression may be in the wings. The methods governments use to use to determine GDP have also become so skewed that they lack real value. Paying someone to dig a hole and then fill it back in adds to the GDP but does nothing to increase productivity. Government spending can increase the GDP while at the same time reducing productivity.