The next round of quantitative easing (QE), a measure deemed as needed and inevitable by some economists, could come in the form of military spending, Pippa Malmgren, an economic adviser and author of Signals and Geopolitics for Investors, told delegates at the Cayman Alternative Investment Summit, which took place in Grand Cayman last week (February 4-5).
“It is a somewhat scary proposition,” she said but explained that given the expansionist military strategies of the likes of Russia and China in recent years should be viewed as a realistic scenario. “Conflict is also one way of solving debt overhangs,” she said.
She also highlighted the significance of China’s One Belt, One Road (OBOR) economic development strategy and framework which is designed to establish better connectivity and cooperation between countries mainly in Eurasia while giving China a greater role in global affairs and the ability to export its production capabilities.
She said the economic policy has deep and widespread implications for all Western economies because it means that China is increasingly investing in long-term infrastructure projects as opposed to buying US treasuries, something that has benefitted the US economy for some time.
“It used to be a perfect circle of capital whereby we would buy Chinese goods and they would invest in our economy but the financial crisis broke that and things are changing fast now,” she said.
She highlighted that partly driven by such changes in the world, inflation would become a very real risk for many of the world’s biggest economies and argued that government statistics on inflation mask its true extent in the real world.
“Inflation is real and the US government is not going to fix it,” she said. “Keep an eye on inflation as it is much higher than the governments or markets are indicating and where there is that disconnect there is a place you can lose a lot of money. There is potentially some big change ahead. Could the next round of QE be in the form of defence spending? Maybe – add it to your thought processes.”
Pippa Malmgren, Signals and Geopolitics for Investors, Cayman Alternative Investment Summit, Cayman