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Embracing a New Normal: The Lesser Evil of Higher Inflation in a Post-Pandemic World

Title: Embracing a New Normal: The Lesser Evil of Higher Inflation in a Post-Pandemic World

In the wake of the COVID-19 pandemic, the world’s economies are navigating uncharted waters. As we grapple with a recovery that has been far from uniform, a specter that hasn’t haunted us significantly in recent decades is beginning to loom large again – inflation. Against this backdrop, an unconventional perspective has emerged – that accepting a higher rate of inflation for a longer period might be the lesser of two evils, especially when compared to the potential pitfalls of precipitously raising interest rates.

Unquestionably, the COVID-19 pandemic has fundamentally reshaped our global economy. To counteract the severe economic downturn, central banks worldwide adopted near-zero or negative interest rates, and governments engaged in unprecedented levels of fiscal spending. These actions, while necessary and effective in mitigating the pandemic’s economic impact, have set the stage for a rise in inflation as the global economy recovers.

The traditional response to rising inflation would be to increase interest rates. However, in our pandemic-ravaged economy, such a move could be particularly damaging. Rapidly rising interest rates can lead to higher borrowing costs, which could strain businesses still rebounding from the pandemic and households grappling with the economic uncertainties. The burden is heavier for those with variable-rate debts, as their debt servicing costs could soar, potentially pushing them into financial distress or even bankruptcy.

By contrast, a strategic tolerance of higher inflation over a longer period, if carefully managed, can allow our economies to absorb these inflationary pressures without derailing the recovery. The approach involves a delicate balancing act that central banks and policymakers must play, starting with clear communication about the intention to tolerate higher inflation for a time. This transparency is essential for managing market expectations and reducing the risk of abrupt market reactions that could destabilize the recovery.

The strategic plan further entails gradual interest rate adjustments, which can help to contain inflation without inducing a shock to the economy. It calls for active monitoring of inflation expectations, which can become unanchored in a high inflation environment, and targeted fiscal measures to support sectors or groups most impacted by inflation. In essence, this approach seeks to strike a balance between allowing for the natural economic healing process to unfold and mitigating the adverse effects of higher inflation.

This plan also recognizes the essential role of fiscal policy coordination. Government spending aimed at boosting productivity can increase economic output without exacerbating inflation, thereby enhancing economic growth even amidst higher inflation. Financial stability measures will be necessary to closely monitor the health of our financial systems under the strain of higher inflation, ensuring safeguards against excessive borrowing.

Finally, this strategic plan underlines the necessity of contingency planning. As we navigate these uncertain waters, we must be ready to respond if inflation does not moderate as expected. More aggressive monetary tightening measures or fiscal contractions might be necessary in such scenarios.

Inflation, particularly the persistent and higher variant, is not a benign phenomenon. It erodes savings, distorts economic decision-making, and could potentially lead to spiraling price increases. Yet, in a world still reeling from the impact of a global pandemic, a rapid rise in interest rates could inflict its own form of economic havoc, making the navigation of this post-pandemic recovery all the more treacherous.

Embracing a period of higher inflation is not a risk-free approach, but in our present economic climate, it might be the lesser of two evils. The pandemic has taught us the value of adaptation and resilience, and our recovery might need to apply the same lessons. Accepting higher inflation over a longer period, managed within a robust strategic framework, might be a critical part of that adaptation as we continue to navigate our post-pandemic economic recovery.

Supply-Side Strategies: An Integral Component of the Response

As we consider the larger strategic framework, it is crucial to acknowledge the role of supply-side measures in managing the inflationary scenario. While monetary policy plays a significant role in controlling inflation, it may not be sufficient alone. Inflation, at its core, is a function of supply and demand. In a scenario where demand outpaces supply, prices naturally rise, leading to inflation.

To counter this, enhancing the supply side of the economy becomes essential. Governments and central banks should jointly explore incentives and strategies to increase the production of goods and services. This could involve a variety of measures:

  1. Fiscal Incentives: Governments could offer tax breaks, subsidies, or grants to businesses that expand production capacity. These incentives would lower the cost of expanding operations, encouraging businesses to produce more, thereby increasing the overall supply of goods and services.
  2. Reducing Regulatory Barriers: Streamlining regulations, cutting red tape, and making it easier for new businesses to enter the market could also stimulate supply. By encouraging competition, we could see a rise in the production of goods and services, potentially helping to keep prices in check.
  3. Public Investments: Increased public spending on infrastructure, research and development, and education can boost the economy’s productive capacity. Improved infrastructure can reduce costs for businesses, making it easier for them to expand. Investments in research and development can lead to innovation and improved productivity, while investing in education can provide a more skilled workforce, contributing to an increase in the supply of goods and services.

These supply-side strategies can complement the other components of the broader strategic framework, such as clear communication from the central bank, gradual adjustments in interest rates, and targeted fiscal measures to support those most impacted by inflation.

In this way, we can forge a comprehensive response to the challenge of higher inflation. By considering both demand-side and supply-side measures, and by being prepared to tolerate a higher rate of inflation for a longer period, we can navigate the economic challenges of the post-pandemic world more effectively. It’s a delicate balance, but with the right strategies and the right level of coordination between different economic policymakers, it’s a balance that we can achieve.

Conclusion: Navigating the Uncharted Waters of the Post-Pandemic Economy

The path towards economic recovery in a post-pandemic world is a complex and challenging one. Traditional economic strategies and reflexes, such as rapidly raising interest rates in the face of rising inflation, might need to be tempered with a more nuanced approach.

It’s crucial to remember that the economic turmoil we face is unprecedented, borne out of a global crisis that affected every sector, every market, and every individual. As such, our response needs to be as multifaceted and unprecedented as the challenges we face. The solution lies not only in monetary policy and interest rates but also in strategic tolerance of higher inflation rates, clear and proactive communication, and supply-side economic strategies that can stimulate production and help keep prices in check.

Navigating these uncharted waters requires courage, resilience, and adaptability. We must be ready to embrace unconventional approaches, consider the lesser of two evils, and always keep the goal of a sustainable, inclusive recovery in sight. By embracing a comprehensive, coordinated strategy, we can hope to weather this economic storm and set sail towards a future of stability and growth.

The road ahead may be tough, and the journey may be long. However, with careful navigation, strategic planning, and a unified approach, we have the opportunity to emerge from this challenge stronger and more resilient than before.

In conclusion, while the current economic climate might seem daunting, we can draw strength from the understanding that we have faced unprecedented challenges before – and we have the ability to do so again. Our collective resilience, determination, and innovative spirit will guide us as we continue to navigate this complex economic landscape towards a future of renewed growth and prosperity

About the Author: Dr. Glen Brown

Dr. Glen Brown is a distinguished figure in the world of finance and accounting, boasting an impressive track record that spans over 25 years. As the President & CEO of both Global Accountancy Institute, Inc. and Global Financial Engineering, Inc., he stands at the helm of organizations that amalgamate the spheres of accountancy, finance, investments, trading, and technology. These establishments under his aegis operate as a comprehensive, multi-asset class professional proprietary trading firm with a global reach.

Endowed with a Doctor of Philosophy (Ph.D.) in Investments and Finance, Dr. Brown’s broad spectrum of expertise covers various domains, including financial accounting, management accounting, finance, investments, strategic management, and risk management. His roles are manifold, showcasing his versatile aptitude: not only does he exercise executive control, but he also exemplifies his commitment to practical application and academic advancement in his field by serving as the Chief Financial Engineer, Head of Trading & Investments, Chief Data Scientist, and Senior Lecturer across numerous financial disciplines.

Dr. Brown’s guiding philosophy lies in the belief that “We must consume ourselves in order to transform ourselves for our rebirth. We are blessed with subtlety, creative imaginations, and outstanding potential to attain spiritual enlightenment, transformation, and regeneration.” This mantra underscores his relentless pursuit of innovation, personal growth, and the strive for excellence in the world of finance and investments.

In his journey to tackle complex financial conundrums with innovative solutions, Dr. Glen Brown fosters a culture of success and innovation at both the Global Accountancy Institute, Inc. and Global Financial Engineering, Inc. His unique philosophical approach coupled with extensive professional experience continues to redefine the landscape of financial education and practice.

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The History of Global Accountancy Institute,Inc.

Founded in 2016 by Dr. Glen Brown, Global Accountancy Institute started as a tuition provider for the following Professional Accountancy Qualifications:
• Association of Chartered Certified Accountants(ACCA)
• Foundations in Accountancy(FIA)
• Certified Accounting Technician(CAT)
• Certified Public Accountant (CPA)
• Certified Management Accountant(CMA)
• Chartered Institute of Management Accountants(CIMA)
• Certified Internal Auditor(CIA)
• Chartered Financial Analyst® (CFA)

In 2019 Dr. Glen Brown redefined Accountancy and bridges Accountancy, Finance, Investments, Trading and Technology together in order for Global Accountancy Institute to become a Global Multi-Asset Class Proprietary Trading Firm.
This allow the institute to convert all its intellectual capital into practical applications in the various industries.
We utilize our own capital to engaged in securities, futures, options and commodities trading in the global financial markets. We are a dynamic company. We are forward looking and quickly let go of past successes and failures.

Global Accountancy Institute brings a scientific approach to trading the global financial markets. We operate within sophisticated virtual computing environments that puts our financial engineers at the forefront of innovation in the world of algorithmic trading.

We are accountants, economists, mathematicians, computer scientists, statisticians, physicists and financial engineers. We research and develop automated trading algorithms using advanced machine learning techniques including but not limited to Regression, Classification, Clustering, Dimensionality Reduction, Ensemble Methods, Neural Nets and Deep Learning, Transfer Learning, Reinforcement Learning, Natural Language Processing, and Word Embeddings.
We have just completed the Global Algorithmic Trading Software(GATS) and have since created Global Professional Proprietary Trading Course for our internal Prop. Traders.

The Global Algorithmic Trading Software(GATS)  help us to make better investment decisions.

We believe the Global Algorithmic Trading Software(GATS) and the Global Professional Proprietary Trading Course can us avoid the negative consequences of retirement.
Many Finance professionals go home at age 65 to die. I have retired into something great. Yes, I have retired into my own Proprietary Trading Firm and continue to build wealth.
“According to Dan Sullivan: “Retirement is a GPS signal for death to come and find you. It’s important to always be engaged with an interesting future.” You can retire from an activity but never retire from life.

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The Fed Crushes the 1981 Economy. Will they do it again in 2022?

In the past, we have seen that three successive significant hikes in Fed interest rates have generally marked the beginning of bear markets and impending recessions. Over the last few days we have seen many predictions of up to even seven successive hikes.

I don’t believe the Fed should increase interest at this time….

The bear market and the costly, protracted recession that began in 1981, for example, came about solely because the Fed increased the discount rate in rapid succession on September 26,November 17, and December 5 of 1980. Its fourth increase, on May 8,1981, thrust the discount rate to an all-time high of 14%. That finished off the U.S. economy, the basic industries, and the stock market.

Let us go back in time to a little history:

October 1979 – Volcker’s Announcement of Anti-Inflation Measures

1965–1982 – The Great Inflation

Origins of the Great Inflation