No inflation? Here she is hidden from view

Politicians, the media and central bankers mostly value inflation, despite quantitative easing (QE) and zero or negative interest rates in the news, keeping inflation under control. As the statistics show, nothing is further from the truth. Governments are trying to hide inflation very sneakily and they are hidden from view. If the refusal to watch this elephant balloon in the room persisted, disastrous economic consequences could become inevitable.

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No small problem

The best hiding places are sometimes uncovered. While central banks such as the US Federal Reserve, financial media and global monetary policy groups often cite indicators such as the Consumer Price Index (PCE) and the price index. consumption (CPI) as the basic parameters of inflation, this approach is widely invoked. to be inadequate. There are several types of inflation that affect the money supply because it is not an isolated phenomenon that only affects the purchases of certain consumers. In fact, the basic mechanisms of fiduciary money itself (money issued and mandated by the government, such as the US dollar) are inflationary at the base, and the problem worsens outside of it according to permutations. virtually infinite.

Before the advent and the widespread use of inflationary paper money by governments and leaders, inflation took the form of monarchs diluting the currency. The value has been reduced. This practice, however, had serious limitations and paper money was a much more exploitable system. Like the mixture of metals, inflation occurs today in hidden places, while prices and face values ​​of "diluted products" remain the same.

Targeted inflation

The Fed has set a target inflation rate of 2%, indicating:

The FOMC (Federal Open Market Committee) noted in its statement that the committee estimated that inflation at the rate of 2% (measured by the annual change in the price index of personal consumption expenditure, or PCE ) is the most constant in the long run. in accordance with the statutory mandate of the Federal Reserve.

The mandate cited is the institution in 2012 of a target inflation rate. Despite the pace and stability of charts and data, inflation is hiding elsewhere.

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Contraction and rotation statistics

Whether it's the diminishing size of Little Debbie cakes or bathroom tissue measurements, the effects of swelling money supply are everywhere. Companies are forced to lower the quality or quantity of their products to cope with a swelling currency – and thus weakened -. This phenomenon is known as "shrinkflation". The progressive loss of value is generated by the company (imagine the replacement of newly inflated inventories based on old prices in the books) and by the consumer. Whatever the degree of stability of the rate of inflation by the authorities, a real value haemorrhage occurs.

In addition, while politicians and the financial media often stress that technologies are becoming more affordable, the loss of accessibility of essential goods and services conceals inflation in the eyes of all. Education, health care, housing and food have become significantly less affordable over the past two decades. But hey, at least you have an iPad.

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Assets tell a darker story

Fed Chairman Jerome Powell said at the Federal Reserve meeting on October 30:

The reason we are raising interest rates in general is that we think inflation is going up or it's going to skyrocket, and we really do not see it at the moment.

Powell may not see him, but that does not mean he's not there. While personalities such as the US presidential candidate, Andrew Yang, can say: "The federal government recently printed $ 4 trillion for bank bailout in its quantitative easing program without inflation," but it's just not the case. The newly created stimulus money lurks in bank reserves and often remains confined to it, or limited to financial markets, partly thanks to interest rates set by the Fed to discourage banks from lending reserves to the larger market. As stated on the New York Fed website:

The other component of the IOR (Interest on Reserves) is the Interest on Excess Reserves (IOER), which is the interest paid on balances above the reserve level that the ID (deposit institution) is held To conserve. Paying IOER reduces lender incentives to lend at rates well below those of IOER.

However, this is tantamount to telling a child to keep a bag of marshmallows and not eat them. The Fed's policy is evolving more slowly than the market and if IEOR does not encourage banks and lending institutions not to lend, this excess cash can be inundated with deluge before the Fed can raise its rates for the first time. to discourage. Thanks to inflation, money is most useful to the first holders and the widened monetary base is blocked and ready to burst anytime for a mob that will be further downstream in the pattern of inflation , and thus easy to trap in agreements with new money "cheap".

Economists, politicians and other politicians say that all is well, this is simply not the case, as the data from the Federal Reserve show. The chart below shows the rising net worth of households despite a massive QE following the global economic slowdown that began in 2007. Since the Great Recession, the monetary base has risen to about 3.5 billions of dollars. It reached unprecedented highs in 2014, regained its peak until 2013 levels and, not producing the effect sought by the Fed, is offered a new chance in this latest wave of 'no of QE ".

While the Fed's massive and protracted massive stimulus pushes the doors of credit institutions, commercial property prices have doubled since 2009. Asset values ​​have risen rapidly, prompting credit institutions to offer more low interest rate loans of assets deformed by inflation as collateral. In other words, the bubble created by inflation is ready to burst.

Turn after turn

In his book "The Constitution of Liberty", Friedrich Hayek, renowned Austrian economist, writes:

Inflation is probably the most important factor in this vicious circle in which a type of government action makes its control more and more necessary. For this reason, all those who wish to put an end to the trend towards greater government control should concentrate their efforts on monetary policy.

The very idea that an increase in the money supply would not devalue that same amount of money is all done. The government cites deflation and other urgent problems – the centralized problems that the economic interference itself has created – and refuses to let the market correct failures and reward success in an organic way. In the end, it's like watching a man with a terrible hangover gorging on bulimia to cure his headache. It is only in a worse situation the next day. If the man is the Fed, he blames more his sober friends for taxation. There is nothing existing in this coming pain after a stimulated stupor, she is only waiting to hit the next day. In the case of the Fed and the global economy, next time may be more of a triage than mere headaches.

What do you think of the supposed lack of inflation after more than a decade of QE? Let us know in the comments section below.

Image credits: Shutterstock, Keith Homan, fair use.

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Graham Smith

Graham Smith is an American expatriate living in Japan and the founder of Voluntary Japan, an initiative dedicated to spreading the philosophies of non-schooling, individual ownership and economic freedom in the land of the rising sun.

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