As we go deeper into fall, we are faced with the certainty of noticeable increases in energy bills. But why are prices going up? And not only the prices of natural gas, to which the latest price hikes are mainly due, but also those of oil, metals and industrial materials, all the way down to food. What is the cause of this new burden that has befallen Italian families, already tried by more than a year and a half of continuous state of emergency?
The first explanation is related to the heavy consequences of the indiscriminate lockdowns wickedly imposed by the world’s major governments from March 2020 onwards. Indeed, virtually everywhere in the world the various supply chains of the real economy have suffered severe slowdowns and bottlenecks in production and distribution activities (supply-chain disruption) that have not yet been fully restored. However, if this was all there was, as bad as it is, it would really be a “temporary” effect, as told by the central banks.
The extinction of the real economy
But this is not the case. In fact, inflation is also and above all a monetary phenomenon. Since especially the Great Financial Crisis of 2007–2009 (GCF), the mass of liquidity injected into the circuits by central banks and fractional reserve commercial banks has escalated truly impressive: from 20–25 trillion at the turn of the century, M2 liquidity (the so-called secondary liquidity, i.e., currency, current account deposits, and generally all assets with high liquidity and certain value), rose to about 40 trillion in the GCF years to 80 trillion before COVID-19, and then jumped to 100 trillion today (figures in U.S. dollars).
It was a process of financialization of the economy, with rivers of liquidity generated ex nihilo in a manner completely unrelated to real economic growth, which drove up real estate and stock market prices, along with bond prices, pushing their yields toward and below zero–a phenomenon which the Austrian School of Economics calls asset class inflation, inflation of the asset.
Increasing liquidity beyond the amount that would be produced naturally without political manipulation by market forces is in fact an inflationary phenomenon in itself, even if it were not to be immediately passed on to producer prices and the shopping cart (that is, the one commonly referred to when the term “inflation” is employed, but which is only a consequence and a particular aspect of it).
Despite tremendous liquidity, the prices of goods and services have generally remained under control in the past few years, mainly due to technological innovation, economic globalization leading to greater competition, and the calming effect on final demand induced by an aging population. For many months, however, there have been repeated clear signs that inflationary tensions have also begun to manifest themselves in producer and consumer prices, and not only because of the highlighted effect of the disruption on the supply side, but also for the acceleration in the unprecedented post-COVID-19 liquidity injection, another US$20 trillion from January 2020.
Add to this the highly expansive fiscal policies of governments, which have led to sharp rises in public debts on the global scale, according to International Monetary Fund estimates, to 101.5 percent of GDP by the end of 2020 (in Italy we are at 160 percent of GDP).
The mass of global debts, public and private, has jumped from $250 trillion in U.S. dollars at the end of 2019 to the monstrous figure of $277 trillion at the end of 2020 (about 365 percent of world GDP).
In this context, the world’s major central banks are playing the extreme card of inflationary exit from the crisis, just as in the wake of wars. In the years ahead they will likely continue with the suppression of bond yields toward and below zero, doggedly maintaining the hike in the prices of goods and services so as to bring real yields (i.e., nominal yields minus inflation rate) into the largely negative zone.
The monetary drug
The uber-expansive monetary policies and inflationary targets pursue the stated purpose of stimulating investment and economic recovery, but in reality they are primarily geared toward stabilizing the financial system, whose serious imbalances (excessive debt, public and private) are kept in check by artificially suppressed yields. But squashed yields are precisely one of the causes of excessive debt, yesterday as today.
It is a perverse spiral that has been self-perpetuating for many years, well before COVID-19: liquidity-debt-liquidity-debt, i.e., a veritable “debt trap” that requires increasing doses of “monetary drugs” to stay upright.
The latest act is to effectively “tax” savings, to make lenders pay by imposing “negative real returns,” thus mocking the ant for the benefit of the grasshopper: where the ant tends to be the small and average saver, i.e., the average family, while the grasshopper is the large industrial and financial groups plus the heavily indebted sovereign states. A kind of anti-Robin Hood, a reverse usury, in short, flowing into the “financial socialism” of central banks: much to the chagrin of those who trusted Article 47 of the Italian Constitution, which closes Title III dedicated to Economic Relations, where it states that “the Republic encourages and protects savings in all its forms.”
If this is the picture, it is clear that central banks will continue to minimize inflationary risks in order to continue with the downward manipulation of nominal bond yields, thus keeping the system in an environment of negative real yields, for years to come. Inflation is neither suffered nor tolerated, it is wanted: to the benefit of debtors, to the detriment of savers and fixed income holders. But, of course, it is not written down.
And that’s still not all. The “ecological transition” that the world’s major governments want to implement, with a view to the UN 2030 Agenda on so-called sustainable development, will entail enormous costs for consumers and taxpayers, with a concomitant falsification of competition.
The “green” revolution, like all ideologies, will cost families dearly–a necessary sacrifice on the altar of Gaia. “Thanks” to the “great opportunity” of COVID-19, we have indeed entered the decade of the Great Reset, where public power, not only of states, but also of supranational power, will increasingly encroach on the spaces of autonomy and freedom of choice of private individuals, as is generally the case during times of crisis. The 2020s do not look like a replay of the roaring twenties–the “roaring” years of the last century–but more likely as what we might dub the bleating twenties: a gigantic redistribution of wealth, with attacks on private property and savings, on the privacy, to freedom of economic initiative and freedom tout court, with increasing public encroachment on the private sector, crony capitalism and increasing demand for welfarism.
If not halted, the outcome of this process will be a gradual hollowing out and impoverishment of civil society, with further centralization of wealth and decision-making in increasingly distant “control rooms.” The heaviest bill will be paid by families, particularly the middle class: savings that are unrewarded and “devalued” by inflation, wages, salaries and pensions that will struggle to keep up with the rising prices of goods and services, increased tax burden (if government spending increases, tax burden also increases by definition because someone eventually has to pay the bill) and less freedom of choice and movement. The ongoing contraction of the middle class and spaces of freedom are to be seen as a clear indicator of the advance of statism, i.e., a form of “liberal socialism,” much to the chagrin of those who continue to denounce a nonexistent “savage capitalism.”
Acquiring and raising awareness of the “Post-Pandemic New Normal,” Agenda 2030 is imperative if we do not want to become bleating subjects without even realizing it.
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