One of the most closely watched gauges of inflation globally, the Consumer Price Index, showed growth of 5.3% year-over-year in August.
There were mixed reactions to these numbers. The mainstream analysts and commentators immediately started to celebrate the fact that inflation slowed down. Others keep pointing out that inflation is still at its highest level in almost 30 years, and it’s here to stay.
It’s no secret that the mainstream media has a pro-government leaning bias. So it’s not exactly surprising that when new inflation data were released, many journalists attempted to downplay the story. After all, inflation could hamper their government’s ongoing efforts to increase spending through money printing.
Here are just a few examples of countless narratives that sought to downplay the alarming inflation figures.
Prices go up because of too much demand
The economics textbooks from the last century trained all students that inflation is about supply and demand, and prices go up because of a lot of money chasing limited goods and services.
In fact, the central banks produce inflation by flawed monetary policies of excessive money printing combined with zero interests rates.
As a result, it’s not the prices that rise but the currencies that depreciate. It means your chicken steak has the same value as before, but the amount of paper money you need to purchase it rises.
As Nobel Prize winner for Economics, Friedrich von Hayek, said,
“I don’t think it is an exaggeration to say history is largely a history of inflation, usually inflation engineered by governments for the gain of the governments.”
Central banks have inflation under control
Just look at the balance sheet of the U.S. Fed below and judge for yourself. Does this hockey stick look like they have anything under control?
Since the 2008 Lehman collapse, the balance sheet rose ten times and keeps hitting new all-time highs every month. Make no mistake; the more money is created, the higher the inflation.
It’s important to realize that the situation isn’t any different in Europe, Japan, or China. All major central banks coordinate their QE program and print money at similar rates. As a result, the Fed, BoJ, and ECB increased their balance sheet by six times from $4 trillion just before 2008 to currently $24.3 trillion.
Initial QE in 2009 was an emergency measure to save us from the collapse. However, the ones that followed were no longer any emergencies. Without a doubt, monetary expansion is permanent now. For this reason, central banks can never decrease their balance sheets, raise interest rates or end their QE programs.
So are there any safeguards in place, or it’s just a house of cards ready to collapse?
I’m afraid it’s the latter.
Central banks already have a record amount of debt, combined with bubbles in the bond, stock and real estate markets. From time to time, they like to threaten to normalize the monetary policy. However, if they did, the entire credit markets would freeze, and there would be chaos.
In a word, the central banks’ balance sheets are going to increase by trillions every year. And I cannot conceive any scenario where these policies would create lower inflation.
Inflation is transitory
The Fed considers recent rises in inflation to be “transitory,” and all major central banks immediately copied the same talking point.
The definition of the word transitory is temporary. Yet, the Fed refuses to provide a definite timeframe. If 5% inflation is around for five years, does that make it transitory? What if it persists for 10 or 20 years? The truth is, no one can prove that the current inflation is transitory. Central bank officials and commentators are using the word transitory just to downplay the disturbing levels of inflation.
Central banks can only make inflation “transitory” by manipulating inflation calculation methods as they did in the past.
For example, the U.S. government changed the method in 1980 to deliberately downplay inflation risk and manipulate public opinion. If we’re using the U.S. Bureau for Labor Statistics’ original calculation method, the true inflation rate is around 14%, not 5.3%.
Don’t fall for the media spin. It’s a distraction or, as Friedrich Hayek wrote, “The road to serfdom.” People worldwide suffer the consequences of price inflation when their paychecks don’t stretch as far as they used to.
Instead, make sure you’re invested. It’s nearly impossible to survive inflation for someone who owns no assets. The more invested in markets, regardless of whether it is equities, real estate, bitcoin, etc., the better off you will be.
Welcome to the new normal.