OBELA Analysis

Since economic activity resumed after the lockdowns, high rates of inflation have been observed around the world, although some monetary authorities have indicated that it is transitory. . The integration of global value chains, the magnitude of international trade and the productive and financial interdependence have shaped this post-confinement inflation.

Inflation is far from transitory, companies are facing a combination of supply chain challenges, as well as higher costs for energy, raw materials, packaging and shipping, all while becoming one of the biggest concerns of consumers around the world.

Central banks have taken a more aggressive stance. US Fed officials accepted that high inflation, which has risen to 5 percent, will be long-lasting. These measures are contractive, contrary to the much desired recovery of the product.

The reasoning of modern monetary theory holds that countries with reserve currencies can maintain unlimited levels of fiscal deficits and public debt because they have financing available. The evidence, however, shows that massive deficits do not mean economic dynamism in the US.

After 2008, federal deficits have doubled from about 60% of GDP to about 120%. Emerging nations shift their resources to China through the US deficit instead of growing, since the world is one and the borders are all open, and trade is unrestricted.

US debt in nominal amounts is more than that of the rest of the world combined. So monetary inflation exists and hits first the most deficit countries, then the least, and finally the rest of the world as imported inflation.

The US Global Build Back Better World (B3W) initiative has been exposed by President Biden to Latin America as an alternative to Chinese financing in infrastructure. It intends to tackle the Asian Giant's One Belt, One Road project under two main political lines.

The focus of the B3W project is on infrastructure development, although the G7 has turned to China for investment to renovate its own infrastructure. China is still viewed by the US as the greatest threat to national security of the 21st century, following the Republican administration.

The B3W represents for the United States a means of strategic competition with China, which shows that, at least in the short term, tensions and the refusal to cooperate with the Asian Giant will be a constant.