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ResearchTalks Vol. 3 - Les prochaines conflagrations économiques
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ResearchTalks Vol. 3 - Les prochaines conflagrations économiques

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by Bruno Colmant

by Bruno Colmant

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    ResearchTalks Vol. 3 - Les prochaines conflagrations économiques ResearchTalks Vol. 3 - Les prochaines conflagrations économiques Presentation Transcript

    • of :1 FACTS AND FANTASIES ABOUT INFLATION : THE ROUTE TOWARDS FINANCIAL REPRESSIONBruno Colmant, Ph.D.Director at the Royal Academy of Belgium 1Professor at Vlerick Management School, UCL, Faculté Universitaire Saint Louis and ICHECEmail : Bcolmant@hotmail.com
    • • Crises are normal expressions of market economy discipline• Economy is the efficient allocation of resources• A crisis is a point of discontinuity between two provisional phrasings of future anticipations• It reduces asymmetries (informational, etc.)• Crashes as expressions of future (stock market) values are impossible to predict 2
    • Of course, the subprimes, but … 3
    • 4
    • … Origin of the crisis• Crises = catalyst for the globalization cycle• Velocity of production factors : capital, labour and information – 1893 & 1907 : agriculture, train, car, telephone – 1929 : urbanity, radio – 1974-1982 : IT – 2000 & 2008 : Internet and credit• 2008 Credit leniency followed by massive deleveraging• 2008 = seismic replication of 2000 crash ?• Deep dive into market economy• Systemic risk, but non diversifiable/ insurable 5
    • The ill-fated convocation of history : 1929 The probable model benchmark : 1979 6
    • First European pitfall : Weimar (1923) 7
    • Second European pitfall : Laval deflation (1935) 8
    • of :9 9
    • Government are business counterpartiesFor a State, a reserve currency is the one of a competitor StateFor a banker, a State is a counterparty, with two exclusive rights : > Levy taxes > Print moneyHow is Europe perceived by the Anglo-Saxon bankers ?The euro is a market economy choice in highly state-controlled economies 10
    • Debt increases Gross Debt % GDP140120100 Canada France 80 Germany Italy 60 UK US 40 20 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 11
    • The US example 12
    • 13
    • Remember Fisher… 14
    • 15
    • My personal intuition I• Context of globalization is totally underestimated• Unsustainable amount of private/public debt in western economies• Mistakes of 2001 are being repeated (avoid deflation)• Lack of monetary certainty• Mix of solutions : • Growth (like in post WW II) • Fiscal/austerity adjustments • Defaults and restructuring • Sudden and significant hike in inflation (inflate the currency in order to reduce burden of debt) 16
    • My personal intuition II• Paper (=fiduciary) money is “debased”• Inflation = silent fiscal adjustment + interest rate increase• Point of attention : inflation solves public debt if : • Interest rate are administrated (i.e. do not include full inflation expectations) • Public debt is fixed rate, long dates and no exponential need• But what is the tipping point ?• Inflation is bad for financial institutions• Fiscal + monetary repression• Defaults factored in some countries• But some countries have the capacity to legislate their currency value (USD)• How long will this last : 20 years (?) taking into account the cost of ageing population• Significant bubbles to come (repetition of occurrence) 17
    • What will be really at stake in the coming years ?Combination public authorities and marketsInequalities in a world featured by mobility of production factorsScarcity of resources and debt excessesTwo extreme cases : Social order or Monetary orderSocial order always prevails 18