Inflation special report

Paradigm Shift

Every regime has its paradigm. For the past 40 years it has been a deflationary paradigm. Inflation was to be killed and this can be seen in many articles and publications. The symbol was the defeat of stagflation in the early 80s. All of this has now undoubtedly turned to inflation.

Politicians at the helm

This year politicians all over the globe have circumvented monetary policymakers. We have seen an absolute explosion in loans and funds. Unprecedented measures have been taken this year and so far, it doesn’t seem that an end is in sight. This is also reflected in the huge debt explosion which we have seen this year. With the ever-decreasing return of new debt in sight, we can expect to not see all of this new debt make a huge positive impact. All of these developments play into higher inflation like wind into a forest fire.

New target in sight

Also playing into all of this, we have witnessed a major policy shift by the Federal Reserve this year. The previous target of 2% was ousted and replaced it with the new system of “average”. Before that the 2% mark represented the ceiling. Now we have progressed down and it now represents the floor.

The ivory tower in the spotlight

The extreme circumstances and further radicalization which we have seen this year also have brought forward new radical policies. Things like MMT which before were only found in some ivory tower in liberal universities has now moved into the spotlight of the public. With the Biden administration even planning to appoint a leading proponent of MMT we can be sure to see more of it in the near future.

The market and its clues

During the pandemic both TIPS and gold have become popular investment choices. Both of these signal that the market is worried about higher inflation rates. Other clues include jumps in US food prices and many others.

Conclusion

Putting it all together and keeping the special circumstances in mind in which we currently are, we are convinced that inflation poses a high risk in the near future regarding wealth and its creation. Investors will have to reconsider classic strategies and will need to adapt to a new environment.