Inflation is a printing press phenomenon
It’s “Inflate or Die.” There’s no other way. And if there was ever any doubt about it, it would have been resolved on September 17, 2019. That’s when liquidity dried up in the “repo” markets — an important corner stone of the lending markets. On that day, the Fed looked the death square in the eyes. Suddenly, the normal lenders — many of them foreigners — were unwilling or unable to cover U.S. deficits. The Fed had to choose: It either way could inflate, or just let markets do their job. The rate to borrow overnight spiked to 10%, and the Fed came all the same to the rescue. Since then it’s been pumping billions of dollars into the repo market. –The Federal Reserve is inflating the currency, pure and simple. Remember; War and Inflation have always been reliable ways to bring down an empire. Don’t doubt if they will fail this time.
Inflation, is an invisible, secret tax that not even 1% of common people understands. It is dangerous and most of the time a fatal disease. If not under control in time, it can destroy society. No government is willing to accept responsibility for causing inflation. They always find an excuse; such as greedy businessmen, selfish trade unions, spendthrift consumers. Although all these can temporarily produce higher prices for individual items; they cannot produce continuing inflation, for one very simple reason; None of the above alleged culprits possesses a printing press, to turn out pieces of paper called money; None can legally authorise a bookkeeper to make fraudulent entries on ledgers that are the equivalent of those pieces of worthless paper.
Over time, the result will be an immensely lower standard of living, resulting from the declining purchasing power and increasing commodity prices. Real wages will be much lower, as employers will not readily increase wages to keep up with inflation. Under a paper system without any backing, the entire monetary system is controlled by the political class, which has the power to allocate capital or to deny it. This implies that the people heading the world’s capital markets, rather than acting as capital allocators, have become mere speculative marionettes, whose strings are controlled by the well connected and the influential Elite.
Inflation is a printing press phenomenon. The two important basic questions are:
- Why do governments increase the quantity of money?
- Why do they produce inflation when they understand the potential harm?
If the quantity of goods and services available for purchase – for short-term ‘output’ – were to increase as rapidly as the quantity of money, prices would tend to be stable. Prices may fall gradually, as more goods became available, while people keep their wealth in the form of money. Inflation occurs when the quantity of money rises more rapidly than output and the more rapid the rise in the quantity of money, the greater the rate of inflation.
Output is limited by the physical and human resources available, and by the improvement in knowledge and capacity to use them. At best the output can grow only fairly slowly. The same is the case, although always temporarily and for a brief period of time, for money backed by a commodity. Because, paper money has no limitation as does commodity-backed money.
In short; Inflation is primarily a monetary phenomenon, produced by a more rapid increase in the quantity of money than in output. Excessive monetary growth produces inflation, caused by governments. – In general, inflation is for citizens worse than a financial crisis.
Taxpayers’ money is spent for nothing without reform or return in sight; causing ncrease in unemployment, as businesses go bankrupt. – Bankers that caused the 2008 financial crisis were bailed out with taxpayers’ money, while their managers were left in charge who in turn were taking on even more risks with taxpayer’s deposits in order to rake up equal larger bonuses. Eventually these schemes will result in a massive inflation, never witnessed before. The debt is structural; it’s irresolvable, there is no way to repair this central bank economy.
Inflation is nothing more than legalised theft by your government; inflation is only two percent, is what the Statistics suggest. But these numbers don’t show the truth. Today’s real inflation rate is probably closer to 9 %, maybe even higher. Who knows? All published inflation data are a blatant lie, as these numbers are made up to suit the government. Showing lower inflation in statistics looks better. The theft committed by governments is concealed.
Inflation damages the fabric of society
When central banks print reserves far in excess of domestic savings, the result is inevitably inflation. The more they print, the more capital is available for institutions – central banks – to invest. This creates a massive asset inflation, in the price of assets, as central bankers buy assets – bonds, stocks, and real estate – to push economies upwards all around the world. – Instead of triggering an immediate currency flight, as seen in Argentina or Zimbabwe. This inflation has produced an investment-generated boom. The ongoing ‘financial boom’ is a fallacy of historic portions. Nobody knows exactly when, but eventually the world will lose faith in central banks’ ability to boost markets.
But as usual there is the lack of a true desire to cure the addiction of free money, resulting in today’s disease. In a sense people enjoy inflation. Although they would like to see the prices of goods they buy go down, or at least stop going up, they are more than happy to see the prices of the things they own or sell go up.
The paper value of homes is rising. With a mortgage, the interest rate generally is below the rate of inflation. As a result of this, inflation in effect is paying off the mortgage interest payments as well the principal. This effect is an advantage to the home owner, as his equity in the house goes up rapidly. The flip side of the coin is that an interest rate below inflation results in a loss for savers.
As inflation accelerates, rather sooner than later, it is causing so much damage to the fabric of society, creating too much injustice and suffering.
How to create sound inflation
On the other hand; if they want to create inflation, there is no need for excessive money printing. They can create inflation instantly by raising the price of gold, which is the easiest way to create inflation. A higher dollar price for gold is practically the definition of inflation. The Fed would just declare the price of gold to be, say, $5,000 an ounce and make the price stick using the gold in Fort Knox – assuming it is still there? – Their gold-printing press would maintain a two-way market.
The Central Bank could sell gold when it hits $5,050 an ounce and buy gold when it hits $4,950 an ounce. That’s a 1% band around the target price of $5,000 an ounce. The band and the use of physical gold would make the target price stick.
Wealth cannot be created by a printing press
Inflation penalises wage earners, savers, and retirees to the benefit of asset owners. It benefits debtors at the expense of creditors. There’s no net increase in the nation’s wealth. One group is merely taxed for the benefit of the other. This is sold as a benefit to the country by governments. They have to sell it to the people because without inflation they won’t be able to pay their bills.
Then again, wealth cannot be created by a printing press. This will cause price inflation, asset inflation, credit collapse – or a mixture of all these three. Everyone knows this. Nonetheless, our leaders pretend otherwise.
If credit is expanded in excess of savings, it historically always ends in a collapse. So there should be no surprise. When creditors begin to ask the critical question: Can these debts really be financed? Will we get our savings back? If credit has been expanded radically beyond savings, as is the case today in the developed world, the answer is always no.
It is factual that dramatic increases in the money supply eventually lead to inflation. But the key word here is “eventually.” Sometimes it can take a while. The extent of the delay depends on general conditions, and a very important concept known as “monetary velocity.” – This is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period. At a low turnover rate, it takes longer for inflation to be observed, and at a very high turnover rate, it becomes hyperinflation, as is currently the case in e.g. Venezuela.
Easy-money policies – like interest rate cuts and liquidity injections from the most powerful central banks in the world – only throw rocket fuel on the Melt Up in the stock markets and rising real estate prices. Since September, the Fed has bought U.S. Treasury bills at a rate of $60 billion per month. Just another form of “quantitative easing” or money printing. In the same way continues the ECB in Europe. After they asked their governors to come up with new ideas to boost inflation, maintain price stability, and grow jobs, which of course is an impossibility!
And when it comes to China’s easy-money policies of the past days, it turned out they’re be doing the same already for a long time. This is what central banks do, they keep things going up and up, no matter what’s happening in reality.
Inflation is not purely from an increase in the money supply. Sufficient monetary velocity is required to spur a general and persistent increase in the price of goods and services. Without velocity, as is the case nowadays – if money doesn’t move through the system – there is no reason for prices to rise.
The point is that it’s not just about how many units are being printed. It’s about where those units go and how fast they are moving through the system. The end game may indeed be accelerating monetary velocity. The cumulative effect on the rise in prices and spectacular loss of faith in the system will result in a decline in the desire for owning paper currencies, that will plummet further, eventually leading to hyperinflation.
At the end of the day, the “easy money” central bank policy isn’t going anywhere soon.
Whether that’s good or bad in the long term remains to be seen. But in the short term, low rates mean less competition for stocks – folks will keep putting money in the stock market for a chance at a higher yield.
Printing more “money” just distorts the picture. It tricks people into thinking that they have more time and resources to work with. A secondary tool at the Fed’s disposal is simply buying up assets, also known as “balance sheet expansion. – Fed Chairman Jerome Powell indicated that the central bank may cut interest rates again in an effort to boost inflation – which remains under the Fed’s 2% target.
But remember, inflation didn’t die. It simply moved to asset markets, where it was warmly greeted and continues to be more than welcome. This was the Second Phase.
The Third Phase began on Sept. 17, 2019, when the Federal Reserve began printing money to cover U.S. deficits, with no pretence of an emergency.
Readers might find this discussion a little peculiar. Think about; the economy is almost 50- years into an Inflationary era, but where’s the inflation? Consumer prices are still rising at only about 2% per year. At least, that’s what the central banks tell. But, economist John Williams, author of the Shadowstats website, calculates inflation using the same formula that the feds used in 1971 — that was the period when the U.S. still had real money. He shows that today’s inflation rate is 10% — 5 times the official rate.
In the stock market, inflation is more obvious. The S&P 500 rose 29% last year. Some of that can be traced to higher tax profits. But the largest part — 99% — was what they call on Wall Street “multiple expansion.” Which is, price inflation.
Perhaps inflation needs some ‘explaining? – Adding fake new money is bound to short-change someone, usually the person who has the old money. For example; Retirees typically live on money they have earned decades before. When consumer prices rise, they lose purchasing power.
But inflation works its mischief in devious and subtle ways. As is observed, over the last half a century, most of the new money has gone into asset prices. That’s why the rich — who own the assets — have gotten so much richer. Retirees, too, if they were lucky enough to put their money in the stock market, have no reason to complain. But the bottom half of the population — with no financial assets — is 30% poorer than it was 20 years ago. And the typical male wage earner, who has only his time to sell, brings home less real money than he did 45 years ago.
Inflation must rip off someone. Otherwise, why bother to inflate at all? Government controls the money. And the government produces no wealth. All it does is redistribute wealth. Inflation is just another way of doing it.
Investors might be reaching the late innings of this historic bull market, as the gains are accelerating. This is what happened in the late 1990s during the run-up to the dot-com peak. A brutal bust followed the dot-com bubble. Now, the Fed central bank is up to some of the same tricks again. Smart investors who followed the market higher – and got out at a good time – made a killing, which can happen again this time, as the Melt Up is about to hit a dramatic turn. And it could be the final shot for a lot of people to make the money they are looking for.