Who doesn’t love a good riddle? Riddles can be fun and a good brain exercise for the entire family. How about a riddle for the global village we’re in? I have a riddle and I am certainly curious as to what the answer is.
So riddle me this:
When real wage growth & real disposable income growth is languishing:
While consumers have loaded up on debt:
All enabled by loose central bank policies of course….
And yet, despite rates being still low, we already see evidence of the cost to service the debt rising:
What happens then when prices & rates suddenly begin to rise? You know, inflation?
Well, we may be about to find out and the UK may be leading by example on how this consumer experiment of high consumer debt, low wage growth, coupled with a sudden rise in inflation pans out:
Central bankers have been on a wild chase to bring about 2% inflation.
Equity markets have responded and have gone nothing but up in a one way fashion no matter which time frame you look at:
A point not lost on Stanley Druckenmiller:
Druckenmiller: ‘Bitcoin, art, wine, equities, credit, you-name-it, everything is one way up and there’s huge distortions taking place and it’s all in the name of this 2% inflation target.’
— Sven Henrich (@NorthmanTrader) December 13, 2017
With this backdrop of unprecedented debt loads of the global consumer, and I mean the global consumer, because it’s a reality virtually everywhere….
….who can afford inflation?
Riddle me this.