Professor Robert Shiller has warned that an era of consistent, low ‘silent inflation’ is over and that global economies are entering into crises that may echo high inflationary periods of the 1970s.
Shiller (pictured) is a renowned American economist, and a 2013 Nobel Laureate. At ETF Ecosystem Unwrapped 2022, he said: “Now inflation is coming back and people are wondering, are we in an inflationary environment? What is the diagnosis? Inflation feels almost like a diagnosis of cancer, and so people are really shocked to see it. It makes people fearful.”
Of the possibility of a ‘Volcker moment’, in which the then Chair of the Federal Reserve in 1979 went to curb inflation by dramatically increasing interest rates, a move that would be imitated in the UK by Chancellor Norman Lamont in the 1990s, Shiller did not believe that global economies had yet reached that point, but that “we are out of equilibrium” and that real inflation is “contagious”.
As well as the oil and gas crises that dominated the 1970s, this was also a Cold War era when annihilation was on people’s minds, another similarity to the current geopolitical situation.
Shiller said: "Ukraine and the threat of nuclear war is a huge shock to our system. In 1949, the nuclear scare led to a tendency to move to the suburbs. We are not that afraid just yet."
Digital currency was also a topic Shiller was keen to cover, and the economist expressed regret that he had not invested when first becoming aware of the concept. He argued that a key driver of Bitcoin was pure ‘human interest’, equating the tale of the as yet unidentified founder going by the moniker Satoshi Nakamoto with legendary tales told over time such as Little Red Riding Hood.
However, Shiller was also keen to point out that in his view cryptocurrency has the aspects of a bubble.
“When we try to figure it out, it's difficult. People have to think about it mathematically. It also conveys political feelings of a widespread distrust of traditional governments around the world, and represents a response with a global AI Artificial Intelligence”, he said.
Shiller is the research principal of the Shiller Barclays CAPE US Index Family. On CAPE’s current capabilities to act as a useful predictive tool for investment, Shiller was downbeat, arguing that an underperforming stock like Blackberry will show that CAPE ratio is not always the same as investment quality.