Germany Follows U.K. to the New Frontier: Rate Hikes, QE, Hyperinflation

Sept. 29, 2022 (EIRNS)—Yesterday the Truss government and Bank of England completed a three-business-day complete somersault in fiscal and monetary policy, creating a new hyperinflationary monster called QE plus interest rate hikes plus tax cuts and massive government borrowing to subsidize energy prices. Challenged by the IMF and various “experts” like Larry Summers and Mohamed El-Erian, the Truss team re-emphasized His Majesty’s government’s resolve to do what it pleases and that it expects to be followed.

Not to insult the German government, today it was monkey see, monkey do. Chancellor Olaf Scholz held a press conference to announce that “prices must come down” and that his government would throw out its debt limit and borrow in order to provide €200 billion in support to households and companies in paying their energy bills, as well as cutting the (natural) gas sales tax and other taxes.

But as in the U.K., whose policy lurch Germany is copying, this will not make “prices come down,” but merely have the government increasingly pay the prices of energy for companies and households, thus creating plenty of demand for prices to continue to go up. German inflation figures for the month showed it over 10% for the first time in many years. “Prices have to come down, so the government will do everything it can. To this end, we are setting up a large defensive shield,” said Scholz, according to Reuters, which reported him also confirming that two nuclear reactors will be kept online until spring.

So the U.K. government and BOE have engineered—and that is the right word for this new inflation product—a bailout for pension funds, money-market funds, hedge funds, and, implicitly, banks down the line a bit, capped household energy bills for a while, and set off earthquakes throughout the bond and currency markets of the world. And Germany has followed the British lead. Which lemming is next?