June 2022

Facing an interest rate shock


Rolling crises have become a norm: from weather events, covid, war, the politics of polarisation, deteriorating mental health, and growing gaps between rich and poor. The recent Australian election made it very clear. Our communities do not think this is  “business as usual”. We now comprehend these events as linked.

And we are now facing an explosion in energy prices, the reappearance of inflation, and rising interest rates.

Economists have tended to blame inflation on easy money, fuelling demand above and beyond what the economy could bear. And with central banks “printing money” [QE] since the Global Financial Crisis, we certainly have had cheap credit. This has been recently augmented by governments around the world offering support during the Covid pandemic. Yet, until now, all of this has not driven inflation in anything other than the value of financial assets and property prices.

The recent jump in inflation has been powered by supply shocks. The jump in energy prices and food prices has been primarily attributed to the Russian invasion of Ukraine. We would argue this was the proverbial straw that broke the camel’s back, in the larger scheme of things a symptom, not the cause.

cliff walking

The real driver of inflation has been the failure to invest over the past 20 years to meet the challenges facing a world of high volume low quality goods; the under investment in infrastructure, new technologies and processes in energy, manufacturing, and food production; the weakening of communities, education and human services. The writing has been on the wall for decades and has been papered over in favour of tax cuts, rising debt, and increasing levels of poverty.

It is now scandalously obvious that renewable energy supported by a distributed grid would have benefited communities and the planet, and avoided many elements of this crisis.

We are now facing rising energy prices and interest rates. The structural driver of this inflation was not too much money, or the Ukraine… but the failure to invest effectively over the last 20 years in critical social and physical infrastructure.

The danger is an interest rate shock caused by past failures that stifles innovation and investment. Leadership across government, business, and community cannot be passive. We must deliver capital to rebuild our economy, knowing that it will deliver significant improvement to community and planet, and sustainable returns rather than short term financial gains.

It’s time to step up.

Christopher Selth

Chief Investment Officer

+61 (0) 409 881 910




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