Kyle Delaney, President and Chief Commercial Officer of Bridgewater, has made available for download his article, “An Update from Our CIOs: What Was Coming Is Now Upon Us”. The abstract is as follows:
MP3 reflationary policies produced massive injections of money and credit into economies, leading to high nominal growth, leading to self-reinforcing inflation, leading to a tightening of monetary policy which is now just beginning. Stagflation is the big risk and the war in Ukraine has added to that.
Last year, as it became clear that reflationary MP3 policies had produced a level of nominal spending growth that was far in excess of the capacity to produce, the natural result would likely be an increasing probability of a self-reinforcing inflation cycle, which would bring us to a transition in monetary policy from extremely stimulative to restrictive.
The source of this high nominal growth was the massive injection of nominal money and credit via coordinated monetary and fiscal policy (MP3). Fiscal stimulation via the monetization of government debt raised nominal income across all income groups. This provided the initial financing of a surge in nominal spending, which further raised incomes, leading to a self-sustaining, self-reinforcing process of nominal spending, financed by nominal income, financed by nominal spending.
Posted by Jessica Ji, Associate Editor, Wealth Strategies Journal.
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