08 February 2021
Economic Highlights, bringing you market updates from across the UK, US, Europe and China, as well as FTSE weekly winners and losers.
The threat of deflation that was evident last March has now been erased, and that the risk of higher inflation is recognised.
The exit route we would all love to see would be a return to strong, productive growth in which the numerator (debt) would shrink relative to the denominator (GDP).The first would be a return to austerity, but we do not believe that this is a politically palatable option, especially as many public services are on their knees already. The exit route we would all love to see would be a return to strong, productive growth in which the numerator (debt) would shrink relative to the denominator (GDP). Not impossible, but it does require judicious investment decisions and persistent technology tailwinds. The most probable outcome in the opinion of many – and one that I tend to share – is some form of financial repression combined with higher taxes aimed at top earners and those whose assets have benefitted from the tailwinds of loose monetary policy. Financial Repression involves suppressing the returns available on safer cash deposits and bonds while allowing higher (but not ridiculously high) inflation rates to lower the debt burden in real terms. This strategy was carried out with some success by the United States after World War II, but with overall demand boosted by more borrowing from the private sector (households and companies) which was starting out from a very low debt position.