The risks are even higher now as negative supply shocks increase inflation and countries engage in protectionism.
John Ashcroft, an economist, shared an article on how loose economic policies are threatening 1970’s-style stagflation along with the 2007-2008 financial crisis. Debt ratios are three times higher than those witnessed in the 1970’s, which along with economic policies and inflation are creating the perfect conditions for stagflationary debt crisis in the next few years.
The existing conditions such as high price-to-earnings ratios, inflated housing assets, and the collateralised loan obligations are already indicating towards this possibility. Negative supply shocks created by the loose monetary policies could lead to increased protectionism among countries, restrictions on immigration and reshoring of manufacturing.
The tension between the US and China could further threaten the global economy especially as the world moves towards climate change initiatives and the coronavirus pandemic forces governments to become self-reliant. As private and public debt increases, it could create a debt trap where increasing policy rates to fight inflation could trigger a debt crisis. Conversely, if the loose monetary policies are continued, it could trigger doubt digit inflation and deep stagflation.
Although the US Federal Reserve adopted monetary easing, it has not impacted the existing market conditions. Under these conditions, the stagflation and debt crisis is expected to ensue over the next few years, the article added.
Conditions are ripe for repeat of 1970s stagflation and 2008 debt crisis … @Nouriel @guardian
Worried about central bank debt, interest rates and the prospects of inflation … print and post this on your work at home wall … #JKA https://t.co/Z4VnhagTW3
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— John Ashcroft (@jkaonline) July 5, 2021
Dean Baker, senior economist at the Center for Economic and Policy Research, shared an article on June jobs report in the US. The latest report was positive with 850,000 new jobs created during the month. The number of temporary layoffs also declined with the share of unemployment due to temporary layoffs declining to 19% in June from 77.9% in April 2020.
The increase in new jobs was associated with increase in wage growth as well especially for those people in low paying sectors. Restaurants, for example, added 195,000 jobs in June with workers receiving higher pay.
Although the new jobs created in June is a positive sign, the US still has 6.5 million less jobs compared to pre-pandemic levels. The recovery to pre-pandemic levels is expected to take much longer despite the existing job market conditions being much better than six months ago. The situation is expected to improve if the government takes steps to address issues such as child care, healthcare and global warming.
The June jobs report and the progress of the recovery https://t.co/Fp0ltP427s
— Dean Baker (@DeanBaker13) July 5, 2021
Linda Yueh, economist at the University of Oxford, tweeted on UK Prime Minister Boris Johnson’s announcement on ending all Covid-related restrictions in the country from 19 July despite rising coronavirus cases. The legal requirement to wear a mask indoors will come to an end and all restrictions on social gatherings and mass events will be lifted. Further, there will be no restrictions on pubs, bars, nightclubs, theatres and cinemas.
The suggestion to work from home for people will also be removed although the government will leave the decision on staff returning to work to the businesses. The restrictions that will remain in place include isolation after testing positive for Covid-19, international travel restrictions and social distancing at airports and other ports.
The Prime Minister noted that the government is moving from government restrictions to placing the responsibility on the individual to curb the spread of the virus. The announcement has been met with criticism as experts predict a rise in coronavirus cases if all restrictions are lifted. The lifting of the legal requirement to wear facemasks was especially condemned. The opposition party called for a balanced approach to lifting of restrictions and cautioned that without restrictions millions of unvaccinated people could be susceptible to long Covid.
1/ England from July 19:
-legal requirement to wear a mask indoors expected to end
-no restrictions on social gatherings, mass events
-Pubs/bars no longer required to serve customers sitting down
-No capacity limits for theatres, cinemas https://t.co/oa10OcreVI
— Linda Yueh (@lindayueh) July 5, 2021