Monetary Distortions of GDP in 2021

By Alasdair MacLeod – Re-Blogged From GoldMoney

This article explains the effect of monetary inflation on GDP. Nominal GDP is directly inflated by additional money and credit, so GDP growth is simply a reflection of additional money in the economy. It gives no clue as to the underlying economic situation. Whether the monetary planners know it or not, targeting GDP growth with monetary expansion is a tautology. They only succeed in covering up a deeper recession, the cost of which will become apparent subsequently as the currency’s purchasing power declines. And despite the wealth destruction being wrought by currency debasement,

in the coming months we will see monetary expansion deployed more aggressively. An inflationary solution cannot succeed; but future GDP numbers will be artificially increased, encouraging policy makers to claim some success. But we should understand the simple relationship between increased quantities of money and the gains they impart to GDP, which will mislead macroeconomic analysts into thinking the economy is more resilient than it actually is.

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Prices Are Going To Rise…And Fast!

With stockmarkets barely ruffled, few are thinking beyond the very short-term and they are mostly guessing anyway. Other than possibly the very short-term as we emerge from lockdowns, the economic situation is actually dire, and any hope of a V-shaped recovery is wishful thinking or just brokers’ propaganda. But for now, monetary policy is to buy off all reality by printing money without limit and almost no one is thinking about the consequences.

Transmitting money into the real economy is proving difficult, with banks wanting to reduce their balance sheets, and very reluctant to expand credit. Furthermore, banks are weaker today than ahead of the last credit crisis, and payment failures on the June quarter-day just passed could trigger a systemic crisis before this month is out.

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We Are At A Similar Situation Where Japan Was Before 1989!

The markets are only “allowed” to go up! The more you control the less you are in control!

Why do I say that – because in Japan in the end of the eighties there was only one way and that was up till the bubble broke in 1989 and we all know what happened afterwards. The Japanese even didn’t have any put options until 1987 when the modern OTC equity derivatives market was born with the creation of put options that were linked to the performance of the Nikkei 225 Index and that came with debt instruments issued by Japanese companies. London banks

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