Saturday, September 4, 2021

Inflation could spark new global financial crisis, says Russia’s central bank

Warning highlights country’s growing concern over worldwide increases in prices

But US and European central banks have said that they consider price increases to be temporary 

Russia’s central bank says a new financial crisis on the scale of the 2008 collapse could happen in less than 18 months if global inflation is not kept in check.

A surge in public and private sector debt levels during the recovery from the pandemic could cause the global economy to “deteriorate drastically and rapidly” if the US Federal Reserve has to jack up interest rates to quell inflation, the Bank of Russia warned in its annual monetary policy forecast.



Ralph Musgrave said...

I see from that FT article that Russia's target rate inflation is 4% as compared to our 2% or so. Hmmm.....

As for the alleged "financial crisis" that the Russian central bank claims would come from a Worldwide rise in interest rates, that seems to be based on the over-simple but popular idea that a rise in inflation AND interest rates by X% imposes an additional cost on borrowers. Actually that's not true if debtors have their wits about them: that is, if they adopt inflation accounting techniques. In other words, and taking a simple example, if someone has to pay 5% on the money they borrow and inflation is running at 5%, then the REAL RATE of interest they are paying is 0%.

Ryan Harris said...

The big worry should be real resources. Chinese labor hitting a massive demographic wall. There is no longer a rural young population looking for work as India tries to increase imports from China 51% this year, US 37%, AIPAC 27%, etc. Chinese domestic prices are rising and causing social tension. China has tried to slow exports and even banned steel exports and other sensitive items to slow inflation. The notion that endless supply of Asian labor to create imports for whatever level of fiscal the west enacts seems... Questionable this year, unlike anytime else in past two or three decades. India has lots of potential for increases in labor productivity. Problem is that it will take 10-20yrs to build out and is already using enormous natural resources at current rate of growth.