Inflation is stubborn in some countries. Deflationary and inflationary scenarios - My essay on the inflation picture मंहगाई पर एक आलेख

Inflation is stubborn in some countries. Deflationary and inflationary scenarios - My essay on the inflation picture मंहगाई पर एक आलेख

Quantative Easing (QE), was applied in US and Europe since 2008 for at least 10 years, when Central Banks bought large amount of bonds to a tune of $1T every year, effectively printing money without a solid foundation. Contrary to the text-book theory that QE should cause high inflation, paradoxically the world witnessed a deflationary scenario (for more than 10 years) especially in Europe where ECB indulged in QE too. There was no inflation in US and Europe for too long.

In Europe bond rates (Bund and Swiss and others) became negative due to deflation. That means companies had to pay a fee for parking their money. For normal people interest rates were zero on their deposits, that continued for more than 10 years. Poor savers got nothing. In order to explain the grotesque failure of the textbook theory, I developed an argument based upon a nonlinear theory - that I discussed with the well known economist Geoffrey Sachs of Columbia University, who concurred with my hypothesis.

Since the beginning of the Ukraine war, the world has witnessed an onslaught of inflation. In a drive to contain inflation, central banks around the world have tighened the screw by increasing the lending rates. Federal Reserve of US has jacked up it on Wednesday the fifth time to 4.75%. European Central Bank and others did too. Unfortunately, this is now leading to a near recession in these countries.

The fallout of the Ukraine war has led to quite high inflation in some countries and a hyperinflation in others. It is becoming difficult to tame inflation even by tightening of the monetary policy! Turkey is enduring a hyperinflation - a country that is prone to this phenomenon- in my opinion by a large black economy based upon corruption- that leads to a large money supply fueling inflation. 

Fortunately, curtailment of black money in India by the Modi government brought inflation to a single digit after 2014; and 2 years after 2021, it is contained by tightning of monetary policy by the Reserve Bank. A high inflation used to be a nightmare for government and the Central Bank before 2014 - because of large circulating black money (my opinion). The value of money used to become half every 5 years- but not anymore! In a good sense, demonetization was quite an astute measure!