Once you provide a benefit it’s just very difficult to take it way. This sure seems to have become a bigger and more complex issue than it had been in the past. Taking away benefits is certainly front and center in contentious Washington with tax and healthcare reform. It is fundamental to the dilemma confronting central bankers these days.
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“The Dam Has Burst”: Why David Einhorn Thinks The Coronavirus Shock Will Lead To Soaring Inflation
“The Dam Has Burst”: Why David Einhorn Thinks The Coronavirus Shock Will Lead To Soaring Inflation
One of the bizarre aspects of the global depression resulting from the coordinated shutdown of most world economies due to the coronavius pandemic, is that we have experience a collapse in both aggregate supply and demand which, almost absurdly, has kept equilibrium prices relatively unchanged (except in the infamous case of oil where due to storage space limitations, the prompt WTI contract traded as far negative as -$40 on April 20. As a result, the biggest challenge facing economists is deciding if what comes next after the coronavirus pandemic is conquered, is inflation – as trillions in central bank and government stimulus lead to a far faster rebound in demand, or if the early surge in supply overwhelms demand and leads to a deflationary crash similar to what was seen in oil.
While the majority of economists and strategists, even contrarian types, are confident what comes next is even more deflation – and why not according to 10Y breakevens there will barely be any inflation for the next decade…
… one financial luminary who disagrees is David Einhorn who, when not feuding with Elon Musk on an almost daily basis now, believes that the economic shock from the coronavirus will turn out to be inflationary as he explains in his latest letter to investors.
But before we get into the gist of it, first we lay out his take on where we are now, and how we got here, namely the events leading to the global corona crisis, and the official response:
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Weekly Commentary: “Not Clear What That Means”
Weekly Commentary: “Not Clear What That Means”
November 15 – Bloomberg (Nishant Kumar and Suzy Waite): “Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved. ‘Have we learned our lesson? It depends what the lesson was…’ Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market ‘could have been dealt with differently.’ And in the ‘so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.’ ‘If you took all of the obvious problems from the financial crisis, we kind of solved none of them,’ Einhorn said… Instead, the world ‘went the bailout route.’ ‘We sweep as much under the rug as we can and move on as quickly as we can,’ he said.”
October 12 – ANSA: “European Central Bank President Mario Draghi defended quantitative easing at a conference with former Fed chief Ben Bernanke, saying the policy had helped create seven million jobs in four years. Bernanke chided the idea that QE distorted the markets, saying ‘It’s not clear what that means’.”
