With the high level of inflation in major economies such as the United States and Europe, there is an increasingly intensive review of the theory of monetarism and quantitative easing. Much ink has been spilled over the policy changes and the shifts in the economic situation during the Great Moderation era of the financial crisis from the mid-1980s to 2008 and after the 2008 financial crisis to the current post-pandemic period, hoping to find the "culprit" of high inflation, as well as possible policy ideas for overcoming it. Not long ago, Nouriel Roubini Roubini, Professor Emeritus and former Professor of Economics at the Stern School of Business, New York University, pointed out that the world economy is undergoing a complete institutional transformation, and the decades-long period of the Great Moderation has come to an end. An article by Financial Times columnist John Plender mentioned that the cost of keeping inflation down on the employment side is likely to increase with delays. 'We have moved from the Great Moderation via the Great Financial Crisis to a Great Reversal into a higher inflation environment", he noted.

Regarding the disappearance of inflation in the era of the Great Moderation, the two scholars basically hold similar views, that is, the globalization of capital and the marketization of emerging economies such as China have greatly contributed to low global inflation. Roubini pointed out that in the era of hyper-globalization after the end of the Cold War, China, Russia, and other emerging economies integrated into the world economy and provided low-cost products, services, energy, and other factors. Meanwhile, migration has suppressed the developed economies' wages; while technological innovation has lowered the production cost of many services and goods; and the relative stability of geopolitics has promoted the division of labor in the global industrial chain. Plender believes that the anti-inflationary forces during the so-called Great Moderation were actually the result of China, India, and Eastern Europe integrating into the global economy, triggering a shock to the global labor market. This ensures a long-term downward trend in the labor force's share of national income. The benefits of increased productivity are harnessed entirely by capital. This anti-inflationary force is reinforced by the broader effects of demographics and globalization.

It is also certain that the failure of the monetarism policy in the era of the Great Detente is closely related to the development and maturity of technology and finance. In particular, it has spawned unprecedented prosperity in the capital market and indirectly absorbed the transmission of money to final consumption. Although the relationship between money and investment is relatively complicated, the over-issue of money promotes the price of risky assets, drives their inflation, and to a certain extent slows down the impact of money issuance on final consumption. However, on the other hand, excessive issuance of money will lead to a decline in investment income, which will make the long-term price of the asset face to drop as well. Zhao Jian, Dean of the Caesar Research Institute, believes that in the past 10 years, money has had more functions but these are more on value storage to ensure future consumption. From the perspective of the United States, driven by continuous monetary issuance, the long-term growth of U.S. consumer demand is the prolonged result of its quantitative easing policy, and this impact is also extending to the global economy. However, once the monetary policy is turned, the capital market, as seen this year, is shrinking with the continuous increase of the Federal Reserve's interest rate hike, which may bring dual pressures, that is, squeeze out the "bubble" of asset value, and also It will affect consumption expectations, thereby exacerbating the recession of the real economy.

The current high inflation, as pointed out by researchers from the ANBOUND, is impacted by the "spillover" of global liquidity caused by the long-term quantitative easing policy. There is also the impact of rising costs of labor, raw materials, and green development under the trend of de-globalization. These factors will not be eliminated by tightening the monetary policy. ANBOUND also noted that high inflation is not a "transitory" short-term problem, nor is it a quantitative easing monetary problem. Rather, it is a change in the global economic pattern. Plender quoted the Bank for International Settlements (BIS) economists' view that monetary policy ignores the supply side, that is, after the financial crisis, the asset purchases of major central banks have further solidified the easing policy tendency and systematically ignored supply side shocks. They were also unable to understand the extent of the viral outbreaks and lockdowns that have reduced supply potential during the COVID-19 pandemic. From this point of view, the theory of monetarism has not completely failed. The mistakes of monetary policy, the strengthening of the government's "de-globalization" policy, and the changes in the global economic and financial structure are the real "culprits" of the current inflation problem.

What worries Roubini and former U.S. Treasury Secretary Lawrence H. Summers is that the current monetary tightening could have more serious consequences. Once inflation solidifies and changes market expectations, it is easy to form a vicious circle of wages and inflation. Plender fears that while commercial banks' balance sheets are better than they were in 2008, under-regulated and opaque non-banks pose a potential systemic threat. Roubini said any attempt to normalize the currency would lead to a surge in debt servicing burdens and trigger mass bankruptcies, financial crises, and the collapse of the real economy. The combination of negative supply shocks and loose monetary, fiscal, and credit policies is ushering the world into a new era of stagflation. In this regard, the global economy is undergoing a major economic cyclical adjustment from a "Great moderation" to a "Great reversal". Although the monetarism framework still plays a role, the current environment and pattern have undergone tremendous changes, and it will also face revisions and changes in the future.

Final analysis conclusion:

ANBOUND's researchers believe that the return of monetarism in the new Great Reversal may not resolve the problem. As Plender noted, if central banks insist on tightening policy in anticipation of the containment of inflation, they need to pay the price of recession, and this will not solve all problems in the short term. This would require governments to rebalance supply and demand, and reconstruct a new globalization pattern.