/biz/ - Business & Finance

During the start of the great depression, economists and politicians of the time stubbornly stuck to their guns In trying to defend the institution of the gold standard.

However ultimately they were forced to abandon it, as the normal economic procedures of the standard created a vicious cycle that exacerbated the crisis.
Political forces were not willing to put up with the level of carnage necessary to preserve deflationary monetary policy or the international fixed standard of payments.

In many ways the dichotomy of deflationists and reflationists seems remarkably similar to what we might see today between entrenched economic institutions that believe in the necessity of an independent federal reserve that can set broad rate policy and provide support directly to financial institutions, Vs those that might believe the elected government should have more control in fiscal policy and that cyclical policy should be more equitably or deliberately targeted.

There was a similar battle during the 1970s inflationary episode, and that time it was the 'bond vigilantes' that won against industrial policy, preserving or even empowering the independent fed as it exists.
I think a similar battle could happen again in the coming years.
Structural factors like an aging population, green energy transition and de-globalisation could all converge to create a very persistent inflation environment that might create multiple inflationary waves and punishing, high Interest rate recessions.

We could again see economic orthodoxy fail to provide effective solutions and large scale political pressure to find alternative solutions.

Powell relents:
>"Deflationary recession incoming, sell risk assets"
>"Soft landing is possible buy buy buy"
Powell does not relent:
>"Higher for longer sell all risk assets"
>"the economy is still strong buy buy buy"

The price will drive the narrative in this case, the real causal factors are elsewhere in the unthinking balance of flows.