Inflation Would Crush The Global Economy

Posted December 14, 2017

The new Macro Watch video looks at the Credit to GDP ratio for each of the world’s twenty largest economies.  We find that credit has been growing faster than the economy for all of these countries for decades.  In other words, Credit Growth has been driving Economic Growth – not only in the United States, but all around the world.

As global inflation began falling in the early 1980s, global interest rates followed it lower.  Falling interest rates made credit more affordable, allowing credit growth to accelerate.  As individuals, corporations and governments borrowed more, they spent more.  Increased spending fueled decades of global economic growth.

Now inflation is very low all around the world and interest rates are near historic lows.  Consequently, debt levels are high and asset prices are stretched.  A sudden pickup in inflation would send the global economy into a tailspin.

The second part of this video looks at five reasons the inflation rate fell after 1980.   It then discusses three developments that could cause inflation to spike.  Finally, it explains why the global economy would be crushed if it does.   

Macro Watch subscribers can log in and watch this 17-minute video now.  The presentation has 42 downloadable charts and slides.

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