Long-Time Deflationist Russell Napier Sees 4% Inflation by End of Year

Russell Napier, founder of research portal ERIC, has spent the past two decades anticipating deflation. Now, he is predicting inflation will top four percent this year. What changed? The government has figured out how to create money without utilizing central banks.   […]

article-image

Source, Turkish Minute

share

key takeaways

  • Government loan guarantees mean new money is quickly getting into the real economy
  • Extending and refinancing debt will ultimately result in inflation

Russell Napier, founder of research portal ERIC, has spent the past two decades anticipating deflation. Now, he is predicting inflation will top four percent this year.

What changed? The government has figured out how to create money without utilizing central banks.  

“We’ve spent 10 years trying to create money and failing abysmally, but now we’ve succeeded,” said Napier on a recent episode of MacroVoices. “We succeeded through a thing called the ‘bank credit guarantee scheme.’ It’s working beautifully well.”

The “guarantee scheme,” also known as a government loan guarantee, is the government’s promise to cover bad debts. Commercial banks get the interest (albeit it’s minimal) or, worst case, the government covers the losses. It’s a surefire way to ensure that the banks lend. 

“When a government mandates a commercial banking system to make loans – and it makes that mandate because it guarantees the principal – then it is in the business of creating money,” said Napier. “Most of the money in the world is created by commercial banks, not central banks.” 

This has created a surge in the supply of money, and most of it rests within the small corporate sector. The pandemic makes it harder for people to spend money, particularly on services, Napier said, so the new money is diverted into stocks and other assets. 

“The money is there, and it’s in the hands of people who didn’t have it before,” said Napier. “Crucially, it is not in the hands of savings institutions, which is what happened to the form of money that was created during quantitative easing.” 

Unlike with the Federal Reserve’s bond buying, guaranteed lending gets money into the real economy quickly. All this means that people end up with more debt, but Napier argued that the political incentive to refinance the debt is great enough for the trend to continue. 

“This is a contingent liability on the government’s balance sheet, so it’s not on the government’s balance sheet,” said Napier during a recent interview on The Grant Williams Podcast. “My view is that when it comes home to roost, they might have to put in a couple of billion into the banks to compensate them for loss of principal, they’ll certainly roll over the loans, so everybody can pay back their principal and interest. This is the way we’ve been running banks for a generation.” 

New lending programs will be created, Napier said, and the debt will just get refinanced. But the get-out-of-debt-free-card isn’t really free. The price tag? Inflation. 

Napier points to Spain’s government loan guarantee policy, which targeted small to medium-sized businesses impacted by coronavirus lockdowns. What originally started as a 100-day credit guarantee extended to a 150-day program.

“Just like the wave of a magic wand,” said Napier. 

Emergency lending programs are being implemented all over the world, especially in Europe, and they keep getting extended. That’s the problem, Napier said. One pulse of credit and money into the system would be fine, but it’s not just one pulse. 

“This is the magic money tree,” said Napier. “I keep drawing attention to the longer term consequences of that which are inflation, but frankly, as a politician, when you weigh all those things up, they’re massively outweighed by the positives.”

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Unlocked by Template.jpg

Research

The BitcoinOS team is the first to have developed and posted a ZK-compressed proof on the Bitcoin network. Other proof verification efforts have been limited to the Signet or testnet deployments. Their work has resulted in the development of BitSNARK, a software library for ZK-compressed fraud proofs on the Bitcoin network. The project aims to provide a horizontal scaling solution, offering a one-stop shop for teams interested in developing a rollup on Bitcoin. This approach shares similarities with the horizontal tech stack scaling in other ecosystems like Cosmos and Optimism, particularly in its focus on simplified verification, bridging standards, and lightweight interoperability.

/

article-image

A16z’s State of Crypto report shows that DeFi has the largest number of daily active addresses, with stablecoins following closely behind

article-image

G2 is delivering real-world performance breakthroughs at 50-100 Mgas/s, Conduit says

article-image

World Liberty Financial’s token sale debuted just as an absurd AI-fueled memecoin captured crypto’s attention

article-image

Coinbase hired History Associates in 2023 to assist in retrieving records from the SEC and FDIC

article-image

Hours after pledging to support Black men’s rights to safely invest in crypto, VP Harris’s Monday night speech mentioned blockchain zero times