The Party's Over
... The West is suffering from inflation at the moment, so people are noticing that their money buys less than it did in the recent past....
It has been over forty years since the West has seen this sort of inflation. That assumes the official numbers are accurate, which is unlikely. In the United States, official inflation is 7 percent, but that is using the new math. If we were using the same math we did in the 1970s, then the real number would be close to double. That is on top of the shrinking-container phenomenon called shrinkflation. Not only are prices going up, but the containers are getting smaller....
The main reason is that the Federal Reserve and the European Central Bank created trillions of dollars and euros out of thin air during the Covid panic. Throwing everyone out of work would result in food riots, so they showered the public with free money as a form of riot insurance. The trouble is the money did not magically go away, so we have the classic problem of too much money chasing too few goods....
Since the invention of the petrodollar, America has been able to print as much money as it needs. The dollar is the default currency of the world, so those extra dollars always had a place to go....
Inflation rates in the United States remained low, as long as global growth remained high and the world was willing to tolerate this system....
China has been manipulating its currency for a few years as a way to prevent Washington from exporting inflation to Beijing. She has also been quietly building parallel financial structures, along with Russia and India, in order to escape the perfidious rules imposed by Washington....
This is the subtext to the war in Ukraine.... Washington can no longer control the global economy by having a monopoly on the currency of the world....
Related
Inflation in the United States, Imprimis, Hillsdale College, January 2022:
Money is just another commodity, no different from petroleum, pork bellies, or pig iron. So money, like all commodities, can rise and fall in price, depending on supply and demand. But because money is, by definition, the one commodity that is universally accepted in exchange for every other commodity, we have a special term for a fall in the price of money: we call it inflation. As the price of money falls, the price of every other commodity must go up....
Governments have only three ways to fund operations. They can tax, they can borrow, and they can print....
The gold standard, where the government stands ready to buy or sell gold in unlimited quantities at a fixed price for its currency, makes inflation impossible....
When inflation is serious, people tend to spend money as soon as they get it, to avoid even higher prices in the future. But in a deflationary environment, people tend to postpone purchases in order to take advantage of lower prices in the future, further depressing the economy....
When Lyndon Johnson acceded to the presidency on the death of John F. Kennedy, he wanted to complete the New Deal. He pushed through a number of programs, including Medicare and Medicaid, Head Start, and the Mass Transit Act. These new programs caused a breathtaking rise in non-defense federal expenditures. Between 1965 and 1968, they rose by a third, from $75 billion to $100 billion. Because of the Vietnam War, military expenses went up as well, from $50 billion to $82 billion.
This new spending inevitably caused an increase in inflation, which had been minimal since the immediate post-war years. A vicious cycle developed, with lenders demanding higher interest rates to protect them from inflation, while the Federal Reserve pumped up the money supply by buying federal bonds to keep interest rates down.... With Congress in full control of spending, spending went out of control....
The national debt now stands at $29 trillion—about where it was in 1945, relative to GDP....
Milton Friedman was right. Create too much money and you get inflation. We are witnessing the proof of that right now.