I interviewed GMO's James Montier last week. Subscribers can read the full interview in the magazine on Friday, but there is one bit I couldn't quite fit in Montier's views on hyperinflation. He isn't much worried about it in most places (it rarely happens in "coherent and cohesive societies"), but the one place where he suggests there might be risk is in Europe.
Economists, he says, generally forget that "their subject is not economics, it is political economy". Look at Europe and you can see that under economic rules it should have split already, but the politics of the eurozone mean that "economics is a slow burn force" there. That suggests that it could "trundle along for another decade" in a miserable state of low growth. It might then accept the need for fiscal transfers that would help.
Quantitative easing (QE) wouldn't be a bad thing either it will at least stop bond yields in some countries crippling them. The problem is that while bond vigilantes are irrelevant in the UK, US and Japan (see the full interview for more on this) they are all too relevant in Europe, where there is still no real state-backed bond buyer of the last resort and there is therefore real credit risk.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
QE can change that and buy the Eurozone some time. What it can't do, however, is solve its problems.
In the end there will be a break up, and then there could easily be hyperinflation. Look, says Montier to all previous breakups of monetary unions: the Russian Federation, the Hapsburg Empire, etc. "One of the underestimated costs of eurozone disintegration is hyperinflation."
There's more on the history of this here.
-
Most expensive street in Britain to buy on has houses with '£10m average asking price', Rightmove findsNews Rightmove found Buckingham Gate, close to Buckingham Palace, was the most expensive street in the country. Do you live near one that's been included on the list?
-
Smaller companies: starting to turn?The long-awaited turnaround in smaller companies is unlikely to happen just because shares are lowly-valued. However, an improving economic and interest rate backdrop could spark renewed interest in the sector. M&A activity is also providing support for the smaller companies sector
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
