Realist, not conformist analysis of the latest financial, business and political news

The World Economy Is About To Go Down As A COVID Death

Remember this guy?

His mobile phone cost him $2,500 back in 1980.

It could make phone calls.

Sometimes.

What happened to mobile phones over the following forty years?

They got better and cheaper, including cameras and internet capability and thousands of potential applications, until now a phone that was twenty times as good as that 1980 brick is now available on any Third World market stall for a dollar.

And for $1,000 you can have a mobile phone with more processing power than the first space shuttle.

We all carry them around. Some of us have two.

Left to our own devices, progress happens and things get cheaper and better.

INFLATION VS PRICE INFLATION

Inflation was a word coined to mean “increase in the money supply” – that’s what it meant for decades. It then started to be used to describe one of the effects of inflation – price increases.

So now, when economists, bankers and politicians publicly refer to “inflation”, they usually mean “price increases”, not increases in the money supply.

We’ll use their language so we know where we stand.

So an increase in the money supply (which used to be called inflation) causes a rise in prices (which is what the word inflation is now used to describe), and this inflation is what prevents prices from falling as fast as they might if they had been left to their own devices – if free market forces alone had been allowed to act on prices through innovation and competition, your last mobile phone might have been available for $500 instead of $1000.

Because in the absence of monopoly/oligopoly/cartel, scarcity or inflation, prices trend down.

And our leaders don’t like that. But why?

THE THEORY OF DELAYED PURCHASING

Let’s imagine your toaster breaks.

You tut and sigh and look online for a new toaster. You find one you like – it’s $100.

Your finger hovers over the buy button, and suddenly you are riven by doubt.

What if deflation happens? What if central bankers fail utterly in their goal to raise the price of this product by 2%, and instead it falls by 2%?

In a year, this toaster might only be $98!

You’d be crazy to buy it now, and enjoy a year of toast, when you could save $2, maybe, by waiting a year.

There are really people who claim people behave this way. And they even pretend to believe it. But as we stare at the central bankers in amazement that they expect us to believe this nonsense, we only need to shift our gaze a few inches to the right.

Where we see their friends the commercial bankers, who have erected a credit complex that reaches to the moon – levels of personal unsecured debt are off the chart.

And that’s pretty weird – central bankers tell us they have to keep prices rising by 2% or people will delay buying things to maybe save $2, and commercial bankers have a very nice business lending money at 15% to people who refuse to delay buying things even though it costs $15 or more to do so.

So……….will people wait to buy the toaster to save $2? No.

And how do we know that? Because the consumer is willing to borrow to have the toaster today! Not only will they not wait, they will buy today even if the toaster may cost them more!

So, given that their claims are…..demonstrably idiotic, it seems unlikely that central bankers really believe them.

What are they playing at?

CENTRAL BANKING MANDATES

They used to be price stability.

By which they meant they would prevent prices falling.

An important mandate to be sure – after all, who wants the prices of things to fall?

Er…………..

Then they changed their mandate to a ceiling of 2% inflation – the central bankers now wanted to ensure prices rose, but not by more than 2%.

Then they said that 2% was a target, not a ceiling – they wanted prices to rise by 2% every year and were concerned when they missed their target.

Now they say they want prices to have risen by 2% every year, so they will have to ensure higher than 2% inflation for every year it was below.

1% last year? We’ll aim for 3% this year.

Averaged 0.5% this decade? We’ll aim for 3.5% for the next decade.

You get the idea.

So where once central bankers had to write letters to explain why inflation had risen above 2%, they now have to explain themselves when it doesn’t.

MEASURING SUCCESS

How can they know whether they are succeeding?

They measure inflation. Honestly.

Now, you might think that there is something of a conflict of interest here – the people that are creating inflation and making our lives more difficult are also the people who want us to vote for them. And they have been put in charge of telling us HOW much more difficult our lives are becoming?

Normally, you’d consider them compromised and ask for independent assessors.

Fortunately, the free market has provided us with some – the Chapwood Index tracks real-word prices across America, and Shadowstats has been using the old metrics (before government fiddled with them) to analyse inflation over the last forty years.

Contrary to what governments might tell you, they find inflation has been between 5% and 10% for many years.

Which might explain why our standards of living have fallen and so many are carrying lots of personal unsecured debt? And with inflation reported at 1%, pay rises for public sector workers can be kept small. If the State admitted it had created 10% inflation……..

Let’s just say, people might be less inclined to revere and vote for such paragons, and lending money might become rather awkward – I don’t imagine many investors would be willing to lend to anyone offering less than 10% interest, in an environment with 10% inflation? Those government bonds in particular might get even harder to shift. And refinancing all those trillions of debt? Nightmare.

So they have motive to under-report inflation? And the means? And the opportunity? As Columbo might say………….there’s just one more thing.

HELPLESS OR HELPFUL

Are these people manfully trying to keep the car on the road, or are they trying to crash it?

Are they unaware of the disaster they have wrought and are gormlessly veering from one oversteer to the next, like an inexperienced barge pilot meandering down the river, overcorrecting wildly and swinging our economies from boom to bust and back again? Some kind of monetary tankslapper?

Or are they sophisticated engineers of crisis, determined to replace this creaky old monetary system with something more responsive to their urgings.

Is the COVID crisis a pretext to shut down our economies and have a proximate cause for the collapse that their careful mismanagement had made certain? Is the global economy about to go down as a COVID death?

And if they are looking to crash the barge, is it so we will allow ourselves to be disembarked onto……….something else?

SUMMARY

It appears that our existing monetary systems have run their course. Central bankers may or may not be deliberately engineering or amplifying crises in order to usher in new systems.

The World Economic Forum seems to be on board.

So shutting down the world economy in a calculated but unnecessary response to COVID has caused a monetary system crisis so profound that some kind of dramatic monetary system reset is required, and the global economy is going to go down as a COVID death.

Luckily, they had a Great Reset on the shelf. Ready for your ID card?

5 2 votes
Article Rating
Total
0
Shares
Subscribe
Notify of
guest
6 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Bloke in Kent
Bloke in Kent
9 months ago

Alex, your articles are becoming increasingly deranged. If the real inflation rate was truly 10% I think we would all have noticed by now and there would be quite a lot of kicking off going on by now…

Michael van der Riet
Michael van der Riet
9 months ago

The only really strange fucked-up thing that the central bankers have been doing lately is resuming QE, aka MMT. Thusly I can’t see any evidence for your hypothesis.

Esteban
Esteban
9 months ago

This does raise a question I’ve always wondered about. We’re told that deflation (falling prices) would be disastrous. Why? I understand that mild inflation is useful to make people feel good – someone whose productivity doesn’t increase can get a 2% nominal raise rather than none. But I’ve always heard that deflation would be near catastrophic. Why?

Matt
Matt
9 months ago
Reply to  Esteban

Debt.
If deflation happens then payable debts can become unpayable. See Italy.

Paul Woods
Paul Woods
6 months ago

This seems to me to be a brilliant piece. Thank you Alex.

6
0
Would love your thoughts, please comment.x
()
x