Email to CNBC’s Steve Liesman on Global QE, Lag, Competitive Devaluation, and War

February 9, 2012

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Question: A study by the BOE’s Mervyn King shows a 5-year lag between money printing and inflation. Given the long and variable lead times between global QE programs and inflation, this suggests we have not seen any of the effects of the global $5-10 trillion in printing. Is the world at risk of an inflationary tsunami, and corresponding rise in interest rates, in 1.5-6.5 years? Given the lag between central bank actions and effects, won’t it take 5 years from the start of tightening for this latent inflation come under control, leaving open a window for a potential stagflationary hell to enter the world?

Second Question: Governments, and central banks in emerging markets initiated their own credit bubbles, suggesting when these bubbles implode, emerging markets will join the printing party. Should we be concerned about a potential repeat of the competitive devaluations and a pseudo trade war patterned after the 1930s and 1970s? Since trade wars have historically led to real wars, should we be concerned about an escalation in geopolitical tension?

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