More Economic Disruption and Stagflation
The 0Micron variant is not serious enough to bring the world to a halt.
That is, except for one thing. Because this virus, barely more virulent than the common cold has been sequenced, it carries with it the dreaded Covid-19 brand name and therefore this is a disease that must be stopped at all costs.
The problem is that it can’t be stopped.
The World Health Organization came out publicly and stated yesterday that they expect 50% of Europeans to become infected with Covid-19 over the next several weeks. It’s actually astounding that the WHO is so far behind in reporting what has been evident for more than a month.
Over the next two months we will continue to experience supply chain shortages across a wide array of products. China has shut down major regions to limit the spread of the disease as they prepare to host the winter Olympics. Further supply chain disruptions will result from China’s attempt to create a Covid free environment for the Olympics. This means that we will see rising prices as customers compete and bid up the price for increasingly scarce supply. But at the same time we will see a decline in GDP. This gives rise to the so-called stagflation that rarely occurs, but is theoretically possible whenever there is an artificial constraint on economic output that hampers the functioning of a free market economy.
We are certain to see Q1 as a quarter of economic contraction. The big question is whether this will persist beyond first quarter.
If you remember earlier last week I went out on a limb to predict that we are likely to witness the current outbreak of 0micron as the end of the pandemic within a matter of weeks. I predicted that the pandemic as we know it will be behind us by the end of February. I am standing by that prediction.
But that doesn’t mean we won’t experience economic hardship during the next two-three months.
Host: Victor Menasce