Interview with former official of the Ministry of Budget and Economic Planning Nino Galloni
“If a student in political economy confused cost inflation with demand inflation, he would be sent home. Yet this is what happened with the rate hikes carried out to stop inflation. The one experienced in 2021 was cost inflation, not demand inflation. And the treatment to be implemented had to be the exact opposite”. Nino Galloni, economist, former official of the Ministry of the budget and economic planning, it gives a macro view that takes us from the ECB to the war in Ukraine, passing through the USA.
Because in the end, in the global economy, everything comes together: even the $31 trillion debt that just prompted Bank of America CEO Brian Moynihan to tell CNN “we are preparing for a US debt default” .
Let’s go in order: what does inflationary dynamics depend on?
This is cost inflation linked to the reduction in investments following the lockdown: with the drop in demand, GDP collapsed, around 10% on average. Then, with a recovery of 5, maximum 6%, halfway between the technical rebound and the real recovery, the infrastructure and logistics system – blocked by the pandemic – had objective problems and was unable to cope with them.
There was no shortage of raw materials: what was missing was the possibility of transporting them to the places of use!
What should the appropriate institutions have done instead of raising rates?
They have applied the tool that comes into play when inflation is driven by demand. Instead, they should have provided monetary relief and lower rates. It was necessary to invest in infrastructure, logistics, transport and import less from China, for example.
In your opinion, why was this macroscopic mistake made?
This crisis is very similar to that of 2009, behind these maneuvers there are circles that consider the dizzying monetary expansion a phenomenon to be stopped. In 2008 there was the infusion of unlimited monetary resources by central banks to support commercial banks and financial institutions in difficulty. However, none of these measures had reached the real economy and in fact the market reacted with cryptocurrencies, with complementary currencies and alternative financial forms.
Did the war effect contribute to this disaster?
Of course, but even this has been approached completely wrong in my opinion: the sanctions have strengthened Putin, prompting him to sell products to geopolitically closer countries such as China and India.
Also let’s not forget that this war will determine the fate of the dollar: a large part of the enormous US debt, 31.6 trillion dollars, is in Chinese and Russian hands.
Why don’t China and Russia take advantage of this?
If they wanted to destroy the dollar they could do it, it would be enough to put this amount of currency on the market and they would create unsustainable spreads. But, for example, the Chinese hold US dollars and bonds worth the yuan and print as much money as they want.
To buy back their bonds, the Americans could issue non-debt money, but that would not solve the problem of the money supply in circulation. They could also mint platinum coins worth a trillion each with legal tender and give them to the Chinese when they expire, their legislation allows it.
The US is still able to enforce the international legal tender of the dollar from the moment it was de-pegged from gold. But imposing the legal tender of one’s currency abroad in a similar condition by printing at no cost is something you can only do with the use of arms… They have bet on war, deluding themselves that they will strengthen themselves with Putin’s defeat.
In terms of pure economic policy, beyond the implications of power and planetary control, what would be the winning solution?
The real solution could be an international agreement for the management of toxic assets involving the USA, China, Russia, India, Europe and Japan. Objective: to get rid of thousands of trillions and freeze them. But it cannot be implemented for obvious geo-political reasons.
Speaking of public debt, quantitative easing, which supported sovereign debt, is slowing down. What implications do you see for our country?
Europe is actually slowing down quantitative easing. If it were to slow it down as much as possible, where international speculation against our public debt were unleashed, we could sell it to the Italians and leave the euro. It’s a possible solution.
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