Central Bank Rate Hikes
Tip Into Lasting Destruction

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22 June, 2023.

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The Bank of England and Norway both raised rates by a full 50 points.

Fresh Recessions across Europe, the US and Australia are now likely inescapable.

While the world has faced and continues to face many challenges, these major historic errors of largely western central banks in completely missing the rise of a new inflation animal, continue to wreak havoc around the globe. Generating as it has the great historic error Version 2. Which has been to allow themselves to fall into the position of being so far behind the curve, as to need to aggressively raise rates belatedly in a way that only continues to trail the reality of the underlying challenge.

It really has, and continues to be a case of the application of last century central bank thinking and playbooks, to an entirely different this century inflation animal. Let alone taking into account the very altered state of the global economy we now live in.

Unfortunately, rather than robust debate around central bank policy relevance, we have developed an economics fraternity seemingly without imagination. One that unquestioningly falls into line behind the absurdity of doubling up on the pain and anguish of consumers and businesses, in a completely misplaced fight against the animal that will only respond to its own reflection and thereby self-correct. 

We must wear the duration of self correction that most certainly resides in the current inflation. 

These further rate hikes, after what has already been one of the most aggressive western central bank periods in history, are arguably both un-necessary and indeed harmful in a non-productive way. Yet, no doubt, some day, such poor policy decisions will be trumpeted by their executioners as having beaten inflation? 

All cycles come to an end. This will of now however be only after the amplified unnecessary destruction of much capital and community well-being. Something central bankers are supposed to take account.  When in most probably the same period of time, or sooner in any case, this new inflation creature would have surrendered by its own accord. Sooner, because these further ignorant errors of rate hikes have now reached a tipping point where they themselves add fresh inflationary impetus.

Please stop the madness. The nature of the Federal Reserve, ECB, BoE, RBA and others current hiking cycle is likely not only to bring economies to their knees, but to keep activity depressed for perhaps the next 1-3 years. 

Rather than a short term economic correction to take the edge off inflation, we have now entered the realm of lasting destruction not easily remedied.

Rate cuts are not coming, as we always forecast, but even if they did, they would at this point not be enough to save the West from one of the more severe and prolonged economic slow-downs we have perhaps ever experienced.

The outlook for all asset classes remains somewhat vulnerable to say the least.


Clifford Bennett

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