Soft Landing in America – Inflation Has to Go Up to Go Down and Avoid an Economic Crisis.
Everyone is keeping their fingers crossed that it will work.
The date of July 13, 2022, was highly anticipated in all financial markets. This date was also highly anticipated in the world of Bitcoin and cryptocurrencies. It was one of the 3 most important dates to follow in July for the Bitcoin market.
It was indeed on this day that the U.S. Bureau of Labor Statistics was to release the inflation figures for June 2022 in America. Analysts were predicting inflation at 8.8%, which would have already been up from 8.6% in May 2022.
In the end, the numbers were even worse than expected with inflation rising to 9.1% in June 2022 year-over-year. America is at a level of inflation not seen in over 40 years:
At almost the same time, the price of oil fell below $100 to its pre-Ukraine war level. At first glance, these two events seem to be opposite, but in reality, they are not and are linked. I propose to explain why.
The causes of inflation
By now, you know the song about the causes of inflation: the COVID-19 pandemic and the billions of dollars injected around the world to save the economy. The Fed and the ECB have been the two central banks printing the most fiat money out of thin air over the past two years.
The post-COVID recovery, with a strong catch-up effect, a surge in demand, and a supply that cannot keep up with the slow restart of production lines, shortages, and bottlenecks.
And finally, the coup de grace, with the war in Ukraine triggered on February 24, 2022, by Vladimir Putin, with sanctions taken by Western powers against Russian exports. With then, Russian retaliation.
Hyperinflation
Even if we all know the many causes of this inflation, its surge is no less spectacular, as we have seen with the figures that have just been published in America.
Inflation at 9.1% in June 2022 in America represents a new record since 41 years and 1981. At that time, America was still suffering the effects of an oil crash.
And yet, this 9.1% figure does not accurately reflect the real effects felt by Americans daily. Energy prices will increase by 41.6% and food prices by 10.4% in June 2022:
In the Eurozone, the inflation figures for June 2022 are of the same type: +8.6%.
Inflation = Recession
We are now entering a new phase, the third, of an economic cycle that began with the COVID-19 pandemic:
Phase I: a COVID-induced recession.
Phase II: dramatic post-COVID recovery, which therefore caused inflation.
Phase III: inflation causes a strong slowdown in the economy.
The European Commission has just lowered its growth forecasts for the Eurozone to 2.6% (from 2.7%) for 2022 and ... 1.4% (from 2.3%) for 2023.
You might think at first glance that this is bad news. But no! It's even excellent news.
Recession = Decrease in inflation
If there is a recession, there will necessarily be a drop in demand. This drop in demand will allow supply chains to be upgraded, and therefore prices to drop.
This is why the price of oil has been falling since the beginning of July 2022. Brent crude has dropped 7% in a week and has gone from $125 with doomsday scenarios anticipated to a low of $95 (-25%) in just one month. Oil is now back to its February 2022 price levels ... before the Russian invasion of Ukraine.
Curing evil with evil is the only solution for a soft landing
In conclusion, you can see why inflation needs to rise initially, to cause a slowdown in the economy, and ultimately, a drop in inflation. This soft landing scenario, with a brief recession in the economy before a return to more normal levels of growth and inflation, is what we are waiting for, and what everyone is hoping for.
Curing evil with evil is the only way to avoid an economic crisis. This situation may seem aberrant to the uninitiated, or even incomprehensible, but it is very logical. Above all, it is the only option available to the Fed and other central banks today.
Everyone is keeping their fingers crossed that it will work, and some even imagine that with a soft landing, the financial markets could be moving in the right direction again by the end of 2022.
Some reading
I’m a Simple Guy. No Smarter Than the Average Person. That’s Why I Buy, and HODL Bitcoin. Bitcoin is accessible to everyone and requires no special skills. Just trust in its revolution.
The Six Barriers to Innovation in Large Companies. Six fears against which large companies must fight to avoid becoming obsolete.
Here Is Why the G7 Ban on Russian Gold Is a Game-Changer, Even for Bitcoiners. This ban brings us closer to the scenario long anticipated by gold bugs.
Always a Contrarian, Michael Burry Predicts a Bullwhip Effect in the Months to Come. Some of the economic data in America point in his direction.