‘The Recession Is Coming’: A Prophecy of Larry Summers (Now Imminent) Federico Rambini

The economist close to the US Democrats had predicted the arrival of a recession a year and a half ago. A scenario is about to materialize: to tame high prices (and fix their mistakes) central banks raise interest rates and hurt demand. With disastrous consequences for consumers – and countries with high debt

“a Recession he is likely toWithin a year or two.”

This expectation should be taken seriously. It comes from the most reliable expert who forecast current inflation, the one who warned America when its central bank was still underestimating and underestimating price increases.

he is Larry Summers, Harvard economistthe former Treasury Secretary of Bill Clintona former economic advisor to Barack Obama.

Summers is referring to America but let’s remember the old saying: When the American economy catches a cold, pneumonia is on its way to Europe. Summers bases his predictions on a lot of data and historical experience: “When? inflation above 4% And the Unemployment is less than 4%Historically we have always had a recession.” The US price index grew by 8.6% and the unemployment rate was 3.6%, which is close to full employment in the pre-pandemic period.

On the other side of the planet, there are those who are working — involuntarily — to accelerate the fulfillment of the prophecy of the American economist. L ‘India with his love, andIndonesia with palm oil, and Malaysia With their poultry: Here are three cases of countries that embraced autonomy limit its exports. They do it to try Protecting domestic consumers from Vladimir Putin’s sharp increases in grain prices With the ban on Ukrainian exports. And each one adds its own, export limits imposed by those Asian countries The world’s food situation is getting worse. The shortage spreads from one sector to the other, as well as the spikes, and the likelihood of a backlash in the form of stagnation increases.

The condemnation of the danger of inflation a year and a half ago by a former Treasury Secretary, out of a certain Democratic faith, was Tones are also very polemical towards his party leaders.

It was summer Critical with the Federal Reserve and the Biden administration, opposed the need for third aid for families and businesses launched during the pandemic: He said it was not necessary because America’s economic recovery had already begun in large part in January 2021 when Biden took office in the White House. Unleashing another trillion in public spending at the time would have caused Americans’ income and purchasing power to increase excessively, and this flood of demand would have caused prices to rise. The facts proved that he was right, and the Fed had to criticize itself. Now the central bank is raising interest rates (it will do so again this week), but just why Monetary treatment started late and is likely to be tougher and thus contribute to the recession.

there The European Central Bank is forced to exit the Fed Given that European inflation is close to American inflation. There are different opinions about the causes of this inflation. It is very likely that multiple factors play a role. On the one hand, and especially in the United States, this surplus of disposable income certainly played a role: between the Trump and Biden maneuvers, a total of 5,000 billion went to increase the overall purchasing power of the American economy. This has also given rise to the phenomena of underemployment and sharp increases in wages, which is another factor of inflation.

In the rest of the world, price tensions have exacerbated known problems in the production and logistics chains hampered by the recovery, with bottlenecks and inefficiencies exacerbated by Repeat lockdowns in China (which is not completely sold out).

As always, when inflation accelerates c

He who earns it and speculates on it.

Biden went to the Port of Los Angeles to indict a cartel of large shipping companies (one of which is Italian, of origin if not a registered office). There is no doubt that the tenfold charging rates also mask oligopolistic behaviour. The maritime sector is just one of many sectors where competition has decreased in recent years. But the same monopolies and oligopolies until a few years ago could not raise prices, when demand was less strong: today their power to increase profits is connected with the imbalance between supply and demand.

That is why central bank care intervenes in the first stages: By raising interest rates, they reduce our spending in many ways, from increasing mortgages to increasing interest On installment purchases and credit cards. This usually ends up taming inflation. Unfortunately, it creates other cascading problems. includingIncreasing the cost of public debt For a debt-ridden country like Italy.

Federico Rampini publishes a newsletter every Saturday with the title Global: to subscribe, go here

Jun 13, 2022 (change on Jun 13, 2022 | 17:37)

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