ResearchTalks Vol. 3 - Les prochaines conflagrations économiques

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by Bruno Colmant

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ResearchTalks Vol. 3 - Les prochaines conflagrations économiques

  1. 1. 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
  2. 2. • 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
  3. 3. Of course, the subprimes, but … 3
  4. 4. 4
  5. 5. … 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
  6. 6. The ill-fated convocation of history : 1929 The probable model benchmark : 1979 6
  7. 7. First European pitfall : Weimar (1923) 7
  8. 8. Second European pitfall : Laval deflation (1935) 8
  9. 9. of :9 9
  10. 10. 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
  11. 11. 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
  12. 12. The US example 12
  13. 13. 13
  14. 14. Remember Fisher… 14
  15. 15. 15
  16. 16. 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
  17. 17. 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
  18. 18. 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

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