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2016 Debt Binge Produces (Surprise!) 2017 Inflation. Guess What That Means For 2018?

2016 Debt Binge Produces (Surprise!) 2017 Inflation. Guess What That Means For 2018?

Swiss inflation rises at highest monthly rate in 5 years 

China February producer inflation fastest in nearly nine years 

Year-over-year import prices at highest level in five years 

ECB keeps bond-buying, rates unchanged amid inflation flare-up 

Food inflation doubles in a month as UK shoppers start to feel the pinch 

What happened? Well, towards the end of 2015 most of the world’s major governments apparently got spooked by deflation and decided to ramp up their borrowing and money creation. China, for instance, generated the following stats in 2016:

  • New loans totaling 12.65 trillion yuan, or $1.8 trillion.
  • M2 money supply growth of 11%.
  • Debt-to-GDP ratio jump from 254% to 277%.

In Europe, the European Central Bank ramped up its bond buying program, pumping about a trillion newly-created euros into the Continental economy:

And the US increased its federal government debt by over $1 trillion, presumably spending the proceeds on things that raise wages or increase the demand for commodities.

Since there’s no way for the growth of global production to match this blistering pace of new money creation, the result is higher prices for just about everything. Oil and most other industrial materials are more expensive, wages are rising, long-term interest rates (the cost of money) are up; you name it, it went up in the past year.

What comes after a debt-driven spike in inflation? History is pretty clear on this one: instability, as rising interest rates spook the fixed income markets and rising business costs spook stock speculators.

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