We were reminded of the quote above, in the latest In Gold We Trust Report. An annual offering from Ronald Stoerferle and Mark Valek. It is a 400-page analysis on financial markets and their impact on the gold price.
Of course, every year much of the data and focus looks at the fallout from the actions of central banks and monetary policy.
This year, the release of the report felt particularly prescient given the profile of central bankers at that very moment; Davos was in full swing whilst economic release after release showed that inflation was on a tear (around the world) and central bankers were scrambling to come up with a plan.
Central Bankers’ Dilemma
Central bankers are panicking because their inability to predict the future has been revealed. Just this week former Fed Chair Janet Yellen was forced on live TV to admit that she had been “wrong then, about the path that inflation would take,”. Referring to comments made last year when she said inflation posed only “a small risk”.
In case you had forgotten, Yellen along with central bankers and policymakers, patronised markets and savers for much of last year by telling us that spikes in inflation were just ‘transitory’ and would soon settle down.
They said supply chains just needed to sort themselves out. Also, the demand and supply would soon find some kind of equilibrium.
Meanwhile, the likes of Wall Street lapped up any stimulus package there was, happy to believe the tale that central bankers had it under control.
Unsurprisingly, the inflationary effects of such stimulus made themselves known well before the end of the year.
So poorly were the central bankers at covering up this charade, that the ECB had to double its inflation forecast in just three months. This was prior to the Russia-Ukraine war.
As a side note, central banks’ inflation targets are all a bit finger-in-the-air anyway. A fortnight ago we wrote about how central bankers arrived at the 2% inflation target. In short, central bankers and politicians in New Zealand agreed on this target after a media slip-up.
By chance, it did the trick for the Kiwi economy and so central bankers around the world thought this also might be the answer to their problems. What damage is this institutional groupthink wreaking throughout the global economy now?
Fast forward to today and…well, there’s a fair amount of ‘oops, did I…Did I say that?’ coming from our learned friends. Not only was inflation starting to creep up last year but now we have the Russia-Ukraine war to contend with as well.
In many ways, this has been a convenient excuse for policymakers. So intrinsic are both countries to the energy and food markets that rising inflation can be blamed on Putin.
The chart below shows the global inflation outlook. Given what we already know in terms of the UK, US, and EU inflation, we’d say the chart is conservative to say the least. But, the figures are courtesy of the IMF so perhaps they’re doing a little of their own ‘reassuring’.
The Global Inflation Outlook
To be fair to the now- US Treasury Secretary, she’s not the only one back-pedaling. U.S. Federal Reserve chair Jerome Powell said earlier this month,
“If you had perfect hindsight, you’d go back…and it probably would have been better for us to have raised rates a little sooner.” Or how about “We got a lot of things right, we got some things wrong…”
These were the words from Bank of Canada’s Governor Tiff Macklem when he was called up to justify his team’s latest attempt to combat inflation.
Former Bank of England Governor Sir Mervyn King told Sky News that ‘collectively’ central bankers were to blame for this surge in inflation. Moreover, that there has been “a failure of the economics profession”.
They believed they had it ‘under control’. They believed they had a crystal ball that told just the right amount of money to print, in order to stimulate but not implode, the global economy.