"Inflationary recession" is characterized by rising prices of consumer goods, falling prices of industrial products and raw materials, and sluggish manufacturing industry. Generally speaking, in a free market economy, this type of recession will not occur, because the wrong investment will be cleaned up and will not stay in the inefficient production sector for a long time. However, if there is persistent inflation, those wrong investments, especially those formed during the bubble period, cannot be cleaned up in time, artificially maintaining inefficient production. In other words, inflation hinders the spontaneous adjustment of the market, which also means that inflationary recession is bound to be linked with the rigidity of the economic structure.
In addition, inflation will also inhibit innovation. Because of the demand generated by economic stimulus, it is enough for enterprises to cater to these needs for production. In this case, the innovation ability of the enterprise itself is insufficient. Because there is no innovation and the return on capital is low, the stocks of these enterprises cannot perform well in the capital market.
Inflation is related to the unbalanced distribution of credit resources. After obtaining funds from the central bank, commercial banks will give priority to lending to state-owned departments, including local governments and state-owned enterprises, because these departments have government guarantees and are less risky for banks. Moreover, the cost of obtaining credit funds for these departments is also low. Because credit resources are limited and scarce, after capital is consumed by these relatively inefficient departments, there will be fewer departments with higher production efficiency. Because a large part of credit resources are occupied by inefficient departments, efficient production departments have to pay higher interest if they want to obtain credit resources, which increases their production costs and reduces their return on capital.
When capital does not get a high return in the production sector, it will naturally enter the consumer goods market and some assets that are considered to have the function of preserving value, thus pushing up the prices of consumer goods and these assets, such as Moutai, housing, gold and so on. Moreover, when people expect the price of consumer goods to continue to rise, they will increase consumption and reduce savings, thus reducing the capital available for production. As a result, the total social output has declined, and the level of welfare has also declined.
Therefore, we can see the phenomenon of "two worlds of ice and fire" economically, that is, on the one hand, the industrial sector is sluggish and the profit rate of enterprises is very low, which is reflected in the stock market, but on the other hand, the prices of consumer goods and assets have risen sharply. This is the "inflationary recession" mentioned earlier. This recession will be concealed by the growth stimulated by inflation, and people don't realize that the economy is actually in the process of recession.
To solve the problem of "inflation recession", we should stop large-scale investment to stimulate the economy and other economic policies that lead to inflation, and do not use loose money as a means to achieve economic growth goals. To some extent, this also means the need for a financial system independent of the government.
Besides, we should encourage saving. People are willing to save when the momentum of inflation is contained. Although savings will temporarily reduce the demand for consumer goods, it will increase capital and lower interest rates, so that people's future needs can be better met. Savings, like consumption, is actually an expenditure, but this expenditure is used for the production of intermediate products.
Also, stop giving blood to inefficient departments. When inefficient departments get a lot of credit, inflation will occur. Zombie enterprises should go bankrupt and don't inject funds to keep running. As mentioned above, when maintaining a large number of inefficient production, the performance of the capital market is definitely not good.
When inflation stops and credit funds are allocated to efficient production departments, productivity will increase, prices will fall, and people's purchasing power of money will increase. This is real economic growth. In this case, deflation shown by price decline is a good thing, which is different from deflation caused by inflation, that is, credit contraction.
In fact, the terrible thing is not the recession, but the inability to get out of it quickly. Persistent recession is caused by persistent inflation, which disguises recession as the illusion of prosperity. When inflation causes economic recession, if inflation is used to cover it up, it will only worsen the problem.
To this end, we should give up Keynesian thinking, which does not consider meeting demand, that is, effectively allocating resources, but considers macro goals such as employment and growth. In order to achieve these goals, inefficient production will be artificially maintained. Many people regard Keynesianism as a solution to the crisis, but they don't know that it is the maker of the crisis.