PUBLISHED BY PHILIPPE HERLIN | DEC 9, 2021
The Danish bank, Saxo Bank, has become famous for publishing every year a series of ten "outrageous predictions" that are supposed to profoundly change our societies in the coming year.
The exercise is difficult and these predictions rarely come true. But they have the merit of pointing out problems, issues and power relations that will be part of our future anyway.
Three of the ten "outrageous predictions" for 2022 concern the macroeconomy, and they seem quite plausible to us:
1. The plan to end fossil fuels gets a rain check.
4. US inflation reaches above 15% on wage-price spiral.
5. EU Superfund for climate, energy and defence announced, to be funded by private pensions.
Energy transition is extremely expensive (see my note for the Thomas More Institute). The massive installation of onshore and offshore wind turbines requires subsidies to compensate for their extra cost, as do electric vehicles (the combustion engine will be banned from sale in the EU as of 2035). The shift will one day appear inevitable, perhaps not as early as 2022 but in the years that follow. This forced transition is driving up energy prices, and therefore inflation, and requires ever more public money. One way to limit the tax burden on the population would be to redirect the money from the pension funds to the "green economy". The return will be bad, but in the end no worse than at present with real interest rates plunging into the red.
In the United States, rising energy prices and the difficulty of hiring are starting to cause a price-wage spiral. 15% inflation seems like a lot, but approaching 10% would be nothing extraordinary when more than half of the way has already been covered.
At the same time, growth will be slow. The return to normalcy after the Covid crisis is not going to happen: we are not done with the virus, there is now talk of a 5th wave, while waiting for the 6th, the 7th, etc. With inflation eroding purchasing power, consumption will not be very lively. Stagflation, which we thought was over since the 1970s, is back!
Let's add a forecast for 2022 or 2023: bank failures. The banks active in the financial markets are still making profits, but the pure deposit banks are suffering terribly. The money deposited by their clients is no longer earning anything because of the zero interest rates. Worse, with inflation starting up again, their clients are losing money and may go elsewhere (stocks, real estate, cryptos, and physical gold, of course). We are already seeing "weak signals": deposit banks are closing subsidiaries abroad (the Dutch ING is leaving France, the German neobank N26 is leaving the US, etc.). They are only buying time, as their business model is inherently flawed. Stagflation, banking risk, yet another Covid wave... the year 2022 does not look very encouraging.
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