ECONOMYNEXT – US inflation has hit 7.0 percent by December in 2021, a near 40-year high, as warned by classical economists after money printing by the US Federal Reserve to ‘stimulate’ the economy, while Sri Lanka’s inflation has also hit a 13-year high of 12.1 percent.
Fed Chief Jerome Powell closed a Fed window which allowed excess money to be parked and printed large volumes of money as the government gave out ‘stimulus’ checks.
Then claim was made that inflation was ‘transient’ which was lapped by the media and the inflationist economists.
Claims of ‘supply chain constraints’ were also made as money injected by central bank fired an aggregate demand bubble, creating bottlenecks all over the world.
Remarkably Powell also claimed there was no link between money supply and economic activity. “The relationship with the money supply is something we have to unlearn,” he had said.
Classical economists had warned that the Fed was going to overshoot its target of 2.4 percent.
In December 2020, Steve Hanke, Professor of Applied Economics at John Hopkins University, Baltimore said the inflation would hit 5 percent, a ungraded the forecast in April.
“Chairman Powell is clearly delusional,” Hanke said. “I cannot believe that the Chairman of a central bank actually said that.
“But I can because they are all singing from the same song book. They produce money and they are telling us that money is irrelevant.
“He is refusing to talk about the product that the Federal Reserve is in control.”
Central bankers usually find multiple reasons to print money and keep rates down and escape accountability when economies collapse and inflation go up.
However Fed Chief Powell came under severe fire at a recent Congressional hearing and admitted that inflation was not transitory.
Sri Lanka had also printed money claiming other countries were also printing money. Unlike the US however Sri Lanka has a soft-pegged exchange rate regime, which means the printed money will also spill over the balance of payments, triggering imports booms and currency crises.
Sri Lanka’s inflation is also he highest since the Greenspan Bernanke bubble which collapsed to form the Great Recession. (Colombo/Jan13/2021)