Whether there is war or not, the economy is heading towards stagflation

Economists call black swans to those unexpected events that change the course of things. A) Yes happened in the last decade with the subprime mortgage crisiswhich caused the biggest recession since 29, or with the pandemicwhich triggered telluric movements in the stock markets and in the world economy.

The frequency of these unexpected eventswhich used to be produced every few generations, increased with improved communications and volatility and speed with which political, economic or social changes occur today.

The year 2022 will be marked by an unexpected political event of remarkable aggressiveness, the open conflict with Ukraine by President Putin. Two worrying circumstances are added to this geopolitical risk: runaway inflationwith higher price increases than structurally expected, and the need to undertake withdrawal of fiscal and monetary stimulus plans greatest in our history.

The three factors together: the geopolitical risk in Ukraine, inflation and the withdrawal of fiscal stimuli make up a Molotov cocktail with unforeseeable consequences. Does this mean that 2022 is going to be a bad year for the economy? It is difficult to know when a crisis will start.

The growth of the last two years was sustained by the massive injections of money from central banks. The balance of the money contributed to the economy by the United States Federal Reserve exceeds 40 percent of the American GDP, while that of the ECB exceeds 70 percent of the GDP of the entire euro zone. Yes, I have written it correctly.

The The Federal Reserve will undertake the first increase in its interest rates in the middle of this month of Marchwhile the central bank chaired by Lagarde plans to end the emergency debt purchase planlaunched during the pandemic, also at the end of next month.

During the long period of unprecedented economic momentum, thanks to fiscal stimulus, lThe States gradually abandoned the rules of budgetary stability so as not to further damage the activity. It is what economists call “the paradigm shift” to maintain, albeit artificially, the income of the employed population.

The direct consequence of these beneficial policies is the appearance of several financial bubbles. The first, and the most disturbing, is indebtedness. Debt reaches 353 percent of world GDP, that is, more than triples it. The negative yields of fixed income caused some countries to exceed reasonable limits, as is the case of Spain, where 100% of GDP was exceeded.

There is a second bubble, derived from the previous one due to the lack of return on money, in the price of housing. In the United States, it is already more than seven times higher than the average household income, the ratio reached before the subprime mortgage crisis broke out.

In China, theThe Evergrande real estate crisis triggered a multitude of defaults that, for the moment, have been controlled internally, without being transferred to the rest of the world, as happened with the junk mortgages of American banks in 2008. The fear is that this effect may repeat itself.

What will happen when the Federal Reserve and the ECB try to deflate the gigantic debt bubble from next month? That is the question. Undoubtedly, there will be a rise in the financing of any asset, from home loans, which have already begun to rise, or consumer goods. Large companies and States will have to pay to finance themselves, something that has not happened until now. Not only the German bond, but the Spanish bond was also in negative rates until recently.

Everything will depend on the rate of withdrawal of these stimuli. In the United States, the Fed has not yet specified when it will begin to reduce its balance sheet. The markets are worried that it will start to do so at the same time that it raises rates, because it could cause a sudden increase in financial costs of companies and Treasury bonds.

If Putin decides to put the feet of his army in Ukraine, fuel prices will skyrocketand central banks will have to act faster and more intensively than envisaged in their roadmap.

Fed Chairman Jerome Powell admitted this week that hIt would have to accelerate the movements before the forecast that consumer prices will climb up to 7.5 percent in the coming monthss, a percentage not seen in more than half a century, which would exceed 10 percent if there is a war.

The idea is beginning to take hold among economists that, with or without war, the world will face a recession, or what is even worse, a stagflation (flat growth with high inflation) as soon as the effect of the economic aid programs and massive monetary injections ends.

the paradigm The one to look at is the Japanese economy, which has been stagnant for decades.a, despite the fact that its central bank injected sums of money into the monetary system equivalent to 140 percent of GDP, twice as much as Europe or three times as much as the United States.

In Spain, we have the fondos Next Generationwhich should fuel activity throughout this exercise. But what will happen when its effect expires from next year?.

The IMF already called this week for fiscal consolidation (reduction of expenses) along with a rise in taxes such as VAT to deal with a runaway public debt and deficit due to the pandemic. The risk premium again exceeded one hundred pointsa level that had not been seen since the height of the coronavirus.

Other international organizations, such as the OECD They criticize the excessive cost for the coming decades of linking pensions to the increase in the CPI. The European Union estimates it at 2.6 points of GDP in 2050, twice as much as today, at 1.4 percent.

The return to the Stability and Growth Pactafter the free spending bar, together with the withdrawal of stimuli, will cause a strong shock in the Spanish economy.

A frenzo in the growth that, as inflation becomes permanent when the rises in oil are attenuated, will drag us to the dreaded stagflation. This is the harsh reality, which no politician wants to see yet. The times of wine and roses will soon be over. And more if there is war in Ukraine.

PS.- The bomb news of the week is the open suicidal war in the PP, which threatens to send him to the opposition for life. The worst thing is that he goes from error to error. Refusing to agree with Vox in Castilla y León means assuming the cordon sanitaire imposed on this party by the socialistswhile condemning its president, Alfonso Fernández Mañueco, to the hell of governing in a minority.

The refusal to agree with Vox is mmotivated by the fight between Abascal and Casado on account of the motion of censure presented by the purples, in which the PP was called to andana. As Casado, do not forget these personalisms and raise your sights a little, he will end up like Albert Rivera, who refused to agree with Sánchez and dynamited Ciudadanos.

The DThe dispute over the commissions charged by the brother of the Madrid president should not have been resolved with mutual reproaches before the television cameras.

Dirty clothes are washed at home. Casado should overcome the fierce fight between the Madrid president, Isabel Díaz Ayuso, and her chief of staff, Miguel Ángel Rodríguez, with the general secretary of the PP, Teodoro García Egea, to find a way to bury the hatchet between the both sides. If he doesn’t, friendly fire will end up destroying the entire popular house. The voters are not going to distinguish between good bad, guilty or not, they are going to punish the PP as a whole.

They will flee en masse to Abascal’s party. His premises on Europe or on the autonomous configuration of Spain and photographic quotes such as that of the Hungarian Viktor Orban make it a radical party opposed to Brussels or Frankfurt, which continue to be the manna that facilitates the functioning of the Spanish economy. But a turn to moderation could attract large numbers of voters.. If not, ask the Andalusian president, Juanma Moreno, that he is very worried about the possibility that Podemos will stand out in the next regional elections.