HAS THE INFLATION GENIE ESCAPED THE BOTTLE?
MSQ Capital’s Managing Director Paul Miron thinks a small recession could be the key to economic control.
By Paul Miron
Wed, Jul 13, 2022 4:17pm
5 min
5 min
OPINION
For the past 40 years, inflation in the western world has not triggered any emotion…until now. Naturally, the question we must ask is: What exactly has caused the sudden panic, fear, and obsession with the subject of inflation?
In central banks’ pursuit of taming inflation, we have seen the blunt instrument of raising interest rates being applied worldwide. This has negatively impacted most asset classes, especially property and shares.
Since 1990, the general trajectory of interest rates has been downward, ultimately reaching the floor of a 0.1% p.a. official cash rate in Australia. In other words, “free money”. This led to an unprecedented demand for almost any time type of asset that can store wealth.
It is no surprise that with the onset of rate hikes, as well as wild predictions of the share market and property market falling in excess of 60% and 30% respectively, all types of investors have their eyes and ears fixated on what will happen next in the global economy.
On the topic of interest rates, it must be noted that if rates are raised too quickly, they could trigger a recession. On the other hand, if inflation is unchecked this could lead to deeper and more damaging recessions worldwide. It may take decades to return to normality.
This is undoubtedly the most pressing economic issue of our time.
To understand the origins of inflation and to arrive at possible antidotes, one needs to dust off their economics textbooks from an era that experienced this phenomenon firsthand – the 70s.
As one of my favourite sayings goes – “History doesn’t repeat itself, but it often rhymes.”
What is the True Origin of Inflation?
Milton Friedman is one of the most highly regarded economists of modern times, reinforced by his receiving of the 1976 Nobel Memorial Prize in Economics for his work on the study of inflation. He is the principal architect of modern monetary policies applied by western central banks.
The words Friedman uttered during his era are all the more relevant to today’s economic climate. As he put so simply: “Inflation is a monetary phenomenon. It is made and stopped by central banks.”
In other words, it is the volume of money being printed, which can be economically summarised as an increase in the money supply, that is relevant to the question of inflation.
Increase In The Money Supply
Since the onset of COVID, the increase in money supply has never been more significant in our economic history. We have been paid a raft of various government benefits to sit at home and disrupt normal business and spending habits. At the same time, the RBA increased the money supply to counterbalance the loss of productivity. Central banks were essentially “printing more money” at a rapid pace, while lowering interest rates and allowing the bank to issue more credit.
Also, let us not forget quantitative easing, where the government buys and issues debt, reducing the cost of capital and creating massive liquidity in the financial markets.
According to Friedman, once a rapid increase in money supply occurs, it takes anywhere between 6 to 18 months for inflation to work through the economy. We are seeing this phenomenon firsthand here in Australia and around the world, with inflation rates not seen since the 70s.
Friedman also noted that inflation is not a global phenomenon but a home-grown problem that is caused by central banks and can be remedied by central banks.
Supply/Demand for Goods And Services
In the normal free-market economic system, prices of goods and services adjust according to demand, with businesses either increasing or decreasing production. Over time, this results in new business entrants increasing supply, or businesses leaving the market and decreasing supply.
Counterintuitively, these disruptions do not cause persistent inflation. From the onset of COVID, the stop-and-start nature of the global economy has resulted in supply chain issues and overnight demand for certain services, with employers needing to re-skill and re-tool their businesses to cope with unexpectedly high demand.
Once again, using free-market logic, these issues will eventually resolve themselves over time. Economists often refer to these impacts being ‘transitionary’ impacts of inflation; that is, temporary.
Looking back at the ’70s inflation crisis, many governments around the globe tried to lay blame on the 1973 war in the Middle East that disrupted oil production and increased its price by as much as 400%. Comparisons can be drawn to the Russian-Ukraine War and its effects to supply chains and commodities globally.
Despite this, the teachings of Milton Freidman tell us that these supply shocks provide short-term inflationary pressure. In the long-term, free-market economics will find a way to adjust the demand and supply of these goods.
Future Price Expectations
Perhaps the most ignored and least discussed aspect of inflation is future price expectations.
In the US, Australia and most western economies during the ‘60s, inflation had been unchecked for many years, rising from 1.5% to 5% during the ’60s, and reaching more than 14% in the ‘70s. In addition, wage inflation in Australia for the five years during 1969-1974 went up by 98%.
If businesses and employees are accustomed to long periods of persistent, rising inflation, a natural response to the rising cost of living will be employees demanding an adjustment to their wages, leading to higher prices and higher inflation. In such a situation, inflation becomes embedded in expectation and becomes a self-perpetuating inflationary issue that is commonly referred to as the ‘wage-price inflationary spiral’.
The main lesson to be learnt from the 70s is that we cannot allow unanchored inflation expectations. Central banks must act swiftly to tackle inflation and maintain the status quo of people having anchored expectations of inflation so as to maintain faith in our financial system. This is to avoid inflation becoming uncontrollable and inflicting unnecessary harsher pain to the economy.
This is precisely why despite Labor’s promises to support the market with 5.5% wage inflation, the RBA recommends that it remains capped at 3.5%. Lower wage inflation guards against a wage-price inflationary spiral.
Thus, we reach a conclusion that a short recession is better than losing control of inflation and letting loose future price expectations.
Looking back at our central bank, the current actions taken by the RBA are taken right out of pages in Milton Freidman’s economic textbook. They are acting swiftly and assertively.
We believe the next 6 months will have a heightened level of volatility in both the property and share market until there is evidence that the inflation beast has been tamed. We anticipate that this will only occur towards the end of the year once we receive data reflecting lower inflation.
Investors should expect a short and fast series of interest rate rises over the next four months.
Hopefully, this will be followed by stability with minimal changes to the official cash rate during 2023. This would enable the economy to re-adjust to the psychology of normalised interest rates.
The RBA Governor, Philip Lowe, indicated that an official rate of 2.5% is the correct setting for a neutral monetary policy and money supply. Investors and borrowers should brace for this setting sooner rather than later and prepare for the fact that we will have higher interest rates and softening asset prices.
Australia’s present economic strength is significant with a low base of unemployment, plentiful natural resources and a food-rich economy. Despite this, the sudden increase in interest rates will pose an additional risk. As mortgage managers, we appreciate our risk assessment and are completely cognisant to the downward risk of depreciating property prices.
We assess the risk of properties depreciating by perhaps between 15-20% – maybe even more for some specialised properties as well as regional properties and vacant land. Additionally, some construction projects have a significant risk of delays and cost blowouts that continue to be the predominant risk factor for this type of debt over the next 12 months.
However, with the lack of supply, wage inflation, migration, low levels of unemployment, rental growth and times of inflation, property is naturally seen as an inflation hedge. Thus, property will remain relatively resilient through these inflationary times.
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Paul Miron has more than 20 years experience in banking and commercial finance. After rising to senior positions for various Big Four banks, he started his own financial services business in 2004.
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The lunar flyby would be the deepest humans have traveled in space in decades.
By Micah Maidenberg
Mon, Mar 30, 2026 4 min
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It’s go time for the highest-stakes mission at NASA in more than 50 years.
On April 1, the agency is set to launch four astronauts around the moon, the deepest human spaceflight since the final Apollo lunar landing in 1972.
The launch window for Artemis II , as the mission is called, opens at 6:24 p.m. ET.
National Aeronautics and Space Administration teams have been preparing the vehicles to depart from Florida’s Kennedy Space Center on the planned roughly 10-day trip. Crew members have trained for years for this moment.
Reid Wiseman, the NASA astronaut serving as mission commander, said he doesn’t fear taking the voyage. A widower, he does worry at times about what he is putting his daughters through.
“I could have a very comfortable life for them,” Wiseman said in an interview last September.
“But I’m also a human, and I see the spirit in their eyes that is burning in my soul too. And so we’ve just got to never stop going.”
Wiseman’s crewmates on Artemis II are NASA’s Victor Glover and Christina Koch, as well as Canadian Space Agency astronaut Jeremy Hansen.
What are the goals for Artemis II?
The biggest one: Safely fly the crew on vehicles that have never carried astronauts before.
The towering Space Launch System rocket has the job of lofting a vehicle called Orion into space and on its way to the moon.
Orion is designed to carry the crew around the moon and back. Myriad systems on the ship—life support, communications, navigation—will be tested with the astronauts on board.
SLS and Orion don’t have much flight experience. The vehicles last flew in 2022, when the agency completed its uncrewed Artemis I mission .
How is the mission expected to unfold?
Artemis II will begin when SLS takes off from a launchpad in Florida with Orion stacked on top of it.
The so-called upper stage of SLS will later separate from the main part of the rocket with Orion attached, and use its engine to set up the latter vehicle for a push to the moon.
After Orion separates from the upper stage, it will conduct what is called a translunar injection—the engine firing that commits Orion to soaring out to the moon. It will fly to the moon over the course of a few days and travel around its far side.
Orion will face a tough return home after speeding through space. As it hits Earth’s atmosphere, Orion will be flying at 25,000 miles an hour and face temperatures of 5,000 degrees as it slows down. The capsule is designed to land under parachutes in the Pacific Ocean, not far from San Diego.
Is it possible Artemis II will be delayed?
Yes.
For safety reasons, the agency won’t launch if certain tough weather conditions roll through the Cape Canaveral, Fla., area. Delays caused by technical problems are possible, too. NASA has other dates identified for the mission if it doesn’t begin April 1.
Who are the astronauts flying on Artemis II?
The crew will be led by Wiseman, a retired Navy pilot who completed military deployments before joining NASA’s astronaut corps. He traveled to the International Space Station in 2014.
Two other astronauts will represent NASA during the mission: Glover, an experienced Navy pilot, and Koch, who began her career as an electrical engineer for the agency and once spent a year at a research station in the South Pole. Both have traveled to the space station before.
Hansen is a military pilot who joined Canada’s astronaut corps in 2009. He will be making his first trip to space.
Koch’s participation in Artemis II will mark the first time a woman has flown beyond orbits near Earth. Glover and Hansen will be the first African-American and non-American astronauts, respectively, to do the same.
What will the astronauts do during the flight?
The astronauts will evaluate how Orion flies, practice emergency procedures and capture images of the far side of the moon for scientific and exploration purposes (they may become the first humans to see parts of the far side of the lunar surface). Health-tracking projects of the astronauts are designed to inform future missions.
Those efforts will play out in Orion’s crew module, which has about two minivans worth of living area.
On board, the astronauts will spend about 30 minutes a day exercising, using a device that allows them to do dead lifts, rowing and more. Sleep will come in eight-hour stretches in hammocks.
There is a custom-made warmer for meals, with beef brisket and veggie quiche on the menu.
Each astronaut is permitted two flavored beverages a day, including coffee. The crew will hold one hourlong shared meal each day.
The Universal Waste Management System—that’s the toilet—uses air flow to pull fluid and solid waste away into containers.
What happens after Artemis II?
Assuming it goes well, NASA will march on to Artemis III, scheduled for next year. During that operation, NASA plans to launch Orion with crew members on board and have the ship practice docking with lunar-lander vehicles that Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin have been developing. The rendezvous operations will occur relatively close to Earth.
NASA hopes that its contractors and the agency itself are ready to attempt one or more lunar landing missions in 2028. Many current and former spaceflight officials are skeptical that timeline is feasible.
