Your PlayStation (NYSE: SONY) might be on backorder, or that new router might be weeks away, or the dealer might say they've only got seven models of that particular car left on the lot.These aren't just minor inconveniences. The 2021 global chip shortage is wreaking havoc across swathes of industries, threatening to derail the fragile global economic recovery.
The last decade of monetary policy was defined by quantitative easing (QE). This was designed by the Federal Reserve and other central banks to stimulate the economy in a zero interest rate world.
The mechanics of this effort entailed central banks buying up assets such as Treasuries, mortgage-backed securities (MBS), corporate bonds, and stocks, in some instances.
By buying up these assets and essentially removing them from the economy, central banks were increasing liquidity in the system. It's unclear what impact it did have on the economy, but it certainly had a very material impact on risk appetites which do have an inadvertent effect on the economy through the 'wealth effect'.
While there certainly is a valid criticism of these efforts, it was successful in preventing a deflationary spiral as was commonly feared during the Great Recession. Further, the worst-case fears of a hyperinflationary spiral never materialized as well.
Now, the situation is much different as persistent inflation is the economy's major threat. The obvious tool to combat this is to raise rates which the Fed is moving towards. But, this has a drawback in that it would slow the economy. The Fed has a dual mandate - boosting employment and stable prices. Of course, there's somewhat of a tradeoff between these 2 in that fighting inflation has the collateral effect of slowing th...
