Decades of Inflationary Finance Coming Home to Roost

In this thought-provoking article, David Stockman dives deep into the turbulent waters of global inflationary finance, examining the dangerous consequences of decades-long policies implemented by central banks, particularly the US Federal Reserve.

By artificially manipulating interest rates and engaging in quantitative easing programs, these institutions have fostered a deceptive sense of prosperity, with asset prices ballooning to unsustainable levels. Stockman warns that the repercussions of such policies are beginning to unfold, threatening the very stability of the global economy, and urges a return to sound money principles in order to avert a potential financial catastrophe.

Mr. Stockman discusses the consequences of decades of inflationary finance on the global economy, emphasizing how the chickens are finally coming home to roost. The author highlights the role of central banks, including the US Federal Reserve, in creating and perpetuating inflation by keeping interest rates artificially low and expanding their balance sheets through quantitative easing (QE) programs.

The continuous expansion of central bank balance sheets has created a false sense of prosperity, with asset prices artificially inflated by cheap money. These policies have led to the formation of multiple financial bubbles, and now that they are starting to burst, the consequences are expected to be severe, with potential implications for the global economy.

The US Federal Reserve has played a significant role in fueling inflationary pressures. Since the financial crisis of 2008, the Fed has expanded its balance sheet from less than $1 trillion to over $8 trillion by 2021, with no signs of stopping. The author claims that this expansion has contributed to a vast accumulation of debt in the US economy, which may lead to a severe debt crisis.

The current trajectory of central bank policies is unsustainable, as it is based on the flawed premise that economic growth can be stimulated indefinitely through monetary expansion. However, history has proven that such policies eventually lead to financial crises, as witnessed in the dot-com bubble, the housing bubble, and now, potentially, the everything bubble.

Mr. Stockman also highlights the global implications of inflationary finance, pointing out that other central banks have followed the US Federal Reserve's lead in implementing QE programs. This has created a situation where financial markets are heavily reliant on central bank interventions, with little regard for fundamentals, leading to global financial instability.

The consequences of decades of inflationary finance could lead to a global financial meltdown, similar to the 2008 crisis, or worse. Stockman contends that the longer central banks continue down this path, the more severe the eventual correction will be, as the unwinding of the vast accumulation of debt and the bursting of asset bubbles will have far-reaching consequences.

Stockman argues that the only way to avoid a catastrophic financial crisis is for central banks to abandon their inflationary policies and return to sound money principles. This would involve raising interest rates to more normal levels and reducing the size of their balance sheets, allowing the market to determine the true value of assets and restore financial stability.

In a recent article from David Stockman’s Contra Corner, he provides this additional insight:

Stated differently, the unassailable truth is that honest, reliable “price discovery” in the stock and bond markets was destroyed long ago.

If the sticky part of the CPI is running at well more than three times the Fed’s target, there is simply no way that the math pencils out to a sharp drop in headline inflation any time soon.

Artificial Intelligence (AI) in Aviation

The aviation industry is embracing the power of Artificial Intelligence (AI) to revolutionize ultra-long-haul flights, enhancing passenger experience and reducing environmental impact.

In a recent Fox Business report, it was revealed that airlines are utilizing AI technology to optimize fuel efficiency, monitor weather patterns, and minimize delays, enabling the creation of non-stop flights to destinations that were once thought to be too far or required layovers. As industry leaders like Qantas and Singapore Airlines continue to push the boundaries of non-stop flights with the help of AI, the future of air travel promises to be more convenient, eco-friendly, and innovative.

Several airlines, such as Qantas and Singapore Airlines, have been at the forefront of this trend, utilizing AI to push the boundaries of non-stop flights. In 2018, Qantas introduced its 17-hour non-stop flight between Perth and London, while Singapore Airlines launched its 19-hour non-stop flight from Singapore to New York. AI-assisted route planning has been crucial in achieving these milestones, allowing pilots to adjust their course in real-time based on weather and other factors. This has led to increased fuel efficiency, reduced CO2 emissions, and improved passenger comfort.

Despite the benefits, critics have raised concerns about the long-term implications of AI in aviation, including job losses and increased reliance on technology. However, industry experts argue that AI is more likely to augment human capabilities rather than replace them entirely. The combination of AI-powered systems and experienced pilots could lead to a safer and more efficient aviation industry, providing passengers with more direct and convenient travel options.

David Stockman highlights the dangers posed by decades of inflationary finance, and calls for a return to sound money policies

If central banks fail to change course, the consequences for the global economy could be severe, with the potential for a devastating financial crisis that would dwarf the events of 2008.

It is time for patience.