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Halver’s Column: Inflation – The Comeback of 2021? – columns

It was one of the biggest comebacks in sports history. After seven years, boxing legend Muhammad Ali regained the world heavyweight title in 1974. European inflation expectations have also been falling for seven years. But many are also expecting a brilliant comeback here next year.

In fact, classical monetary theory is being belied. Although the ECB’s liquidity hits seem like chin hooks, they have not yet resulted in a knockout from inflation.

Strong arguments for more inflation?

Nevertheless, in 2021 inflation in Germany is expected to hit up to 10 percent.

Demography is used first as an argument. In the western world, the aging population is leading to expensive shortages in the labor market and massive increases in healthcare costs.

In addition, deflationary globalization, grazing the world’s cheapest locations, is reaching its limits. Because of their economic performance, emerging Asian countries have long ceased to be cheap homes. The corona pandemic and growing protectionism would also result in critical medical and industrial goods being manufactured again in the comparatively expensive industrial nations to prevent dependencies.

Last but not least, after citizens had to persist in pandemic compulsory asceticism for a long time, there would be massive post-coronal consumption hits. The saved purchasing power will no longer leave travel agencies, hotels and restaurants in peace. Since this demand would only meet a limited supply – because e.g. Airplanes were shut down or restaurants and bars were knocked out. are – price increases would be the logical consequence.

Finally, since the German VAT will be increased again from 16 to 19 percent at the beginning of next year, there will be a series of right and left inflation hooks on the economy in 2021.

Is inflation really coming out of cover?

Of course, there will be no relapse into closed national economies. World trade and the internationally optimized division of labor are definitely not dead.

In particular, one should not underestimate technological deflation. Robots are increasingly replacing people in industrial companies. They don’t ask for a vacation, they don’t get sick, they work 24/7, they don’t go on strike and they don’t want a wage increase. In fact, layoffs of skilled workers are no longer uncommon despite short-time allowance. This is also the reason why politicians have long been thinking about the introduction of the unconditional basic income.

Many everyday goods are not only fundamentally cheaper, but also more and more efficient, i.e. they have a double anti-inflationary effect. In view of the quality e.g. With today’s smartphone cameras, a normal citizen thinks twice about buying an expensive digital camera at all.

Surely the vaccines are lights at the end of the dark economic tunnel. But it will take months for the population to be vaccinated. Purchasing power does not come in the form of the unbridled punch of a Rocky Balboa on the economy, but more leisurely, more in the context of a build-up struggle. In any case, many consumers will only open their wallets cautiously due to the insecure employment situation.

The global production capacities can also be ramped up again quickly and flexibly. There is no need to fear a long-term supply gap. And when there is money to be made again, the offer will come back quickly. Man is a homo economicus.

Incidentally, commodity prices are now tired inflation fighters. Starving countries like Brazil are grateful for every ton of copper they sell. And the Opec, once a celebrated prize boxer who taught us to fear inflation, is now an outdated fair boxer. Your funding cuts no longer act like uppercut marks. Because the subsequent expansion of the production of fracking oil will quickly put energy prices back on the board.

And since VAT is only a one-off price effect, the overall risks for a Muhammad Ali-like comeback of inflation are manageable.

Politicians are disappointed that inflation is on the ropes

The unprecedentedly lush stimulus measures across Europe have so far only set off asset price inflation (interest-bearing securities, stocks, real estate, gold, Bitcoin). In contrast, real economic inflation is not revving up, which shows that the economy – regardless of the pandemic – is not ready to fight.

It is essential to prevent the deflationary side from winning. Once the economy is counted, companies and consumers will restrict their investment and consumption activities because tomorrow will be cheaper. And why should you spend money tomorrow when it will be even cheaper the day after tomorrow? In such a scenario, the fight against the incredible over-indebtedness is one of David versus Goliath, but unfortunately with a different outcome.

That is why the economic boxing arena continues to fight for the economy and inflation.

Modern monetary theory and digital currency as the ultimate inflation doping

More and more unorthodox proposals are presented. According to the so-called modern monetary theory, the time has come to make the central bank a comprehensive, even compliant financier of government spending. Without worries about creditworthiness and high interest costs, father can rain the state down for his wards.

This instrument had a particular effect when the citizens were sent these blessings directly to their smartphones. Then the citizens would only have one simple task: to spend the digital money as quickly as possible.

Then – it is claimed – you could fight successfully in two boxing rings at the same time. On the one hand, the economy and employment will be cold-started. On the other hand, the economic price hammers achieved in this way beat the debt by way of inflationing K.O. It is to be hoped that such radical economic nonsense will never become a reality.

Nevertheless, in Europe you will go through all the rounds if possible to win the fight against reflation. The ECB will play the whip, so to speak, the boxing promoter.

Either way, we investors can defend ourselves against any inflation knockout with real capital: stocks, real estate, gold.

By the way, physical capital doesn’t have to experience a comeback in 2021, because it is already a permanent champion.

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