The creation of money through debt with interest is a bite to society. A painless bite at the beginning, but one that injects into the economy a kind of slow poison that spreads: speculation, inequalities of wealth, establishment of plutocracy, inflation…
Among these slow poisons, there is inflation. Surely the phenomenon least understood by citizens and even by some economists.
Inflation is not a static phenomenon. It is a dynamic phenomenon, which spreads, sometimes slowly, sometimes violently.
To understand inflation, we must imagine money as a liquid that spreads through the economy.
Water is always looking for a way to circulate. Sometimes it finds it easily, sometimes it accumulates in one place until it finds the small crack to get into it and circulate.
The fault becomes a channel, and suddenly the water pours abundantly towards its new destination.
Money acts exactly like water. The central banks opened the monetary tap at the beginning of the 2008 crisis, and as if by magic, the money remained confined to the financial markets for years, without reaching the so-called real economy (except for real estate).
At the beginning of the 2008 crisis, the money tap is used to “water” banks thirsty for monetary liquidity, close to collective death.
The created money then saves them from agony, caused however by the effects of their own greed.
Is it moral to save immoral banks with money of public interest since it is created from nowhere by central banks?
Let’s put morality aside for the moment. The banks are saved, but finance continues to rock. The debt of states and companies with access to the financial debt markets is being attacked by vulture funds, funds of speculators.
The money poured by central banks on commercial banks is not spreading fast enough on the debt market, because confidence has been broken since the confidence shock of 2008.
No matter, central banks decide to act directly on this famous debt market where governments and multinationals take on debt. Money is created from nowhere by central banks to buy debt held by commercial banks.
At this point, which corresponds to the sovereign debt crisis (2010-2014), the effects of magical money creation are only good! Banks and finance are thirsty for money, they drink all they can, not letting any drop spill out.
Money remains hermetically sealed in the world of finance and markets: it serves to mop up the mistakes of the past, while the people tighten their belts!
Faced with what looks like magic (which is not), central banks do not turn off the money tap. Every time they try to turn it off, the financial markets fall violently: the banks and investors cannot do without their monetary drug.
The blackmail works. The money tap pours billions into the debt market, the price of bonds rises, artificially killing the risk of bankruptcy of states and multinationals.
The result: the rates that remunerate the risk fall, becoming zero, or even negative!
The logic of profit pushes money to find a new path and a better destination. Arbitrage is natural, money looks for places that still pay!
What better remuneration than corporate dividends and real estate rents? Stock and real estate prices rise as money created out of nowhere by central banks continues to be injected into the debt market!
As of 2015, dangerous bubbles are being created.
All of this is allowed because in real life, inflation does not officially exist, because the index that calculates it does not take into account bonds and stocks. The weight of real estate is only 6.2%.
At the same time, the salaries of civil servants are frozen, budgetary austerity is in place: taxes are being raised and public services are being closed.
We are cutting off the funds of those who can create official inflation to please the markets, which are keeping our political leaders at bay. This is the beginning of the social movements, especially that of the Gilets Jaunes, which is in reality the movement of the loss of purchasing power.
What an incredible situation when you think about it: finance benefits from thousands of billions on the one hand to be saved from the effects of its greed (2008 crisis); on the other hand, poor people who are pushed to a monetary diet under the pressure of this same finance! It’s funny.
All this to contain “official” inflation, which is the only brake on money creation by central banks, because consumer price stability is their main mission. Consumer price stability, not asset price stability.
The mission of central banks is to ensure the stability of consumer prices, i.e. the inflation of the poor, and not to ensure the inflation of asset prices which is the inflation of the rich. On the contrary, since 2008 they have been feeding the “inflation of the rich”.
So as long as the people do not benefit from money creation, the hold up can continue. The central banks continue to inject more and more money from 2015.
The markets are satiated with money, bubbles are created. The more knowledgeable sense that something is wrong. Money continues to find its way in.
It’s not for nothing that in 2017, the world discovers bitcoin, which until then remained confined to a community of crypto-currency pioneers.
Besides, the crypto world and the art world are the other destinations of the magic currency that is trying to make its way out of the debt, stock, and real estate markets that have reached levels that no longer mean anything!
Then came the health crisis of 2020 and the near total shutdown of the economy. This time it was impossible not to let the real economy benefit from the magic money, because without the work of the plebs, finance had no one to exploit.
This time, small and medium-sized enterprises and multinationals take advantage of state-guaranteed loans to ensure the payment of their debts. States pay part of their turnover and salaries with magic money.
In the United States, the FED even offers checks directly to citizens.
Everywhere money is flowing not only to the markets but also to the consumers.
All this while the machine is at a standstill!
At the end of the confinement, the “purchasing power” of the citizens is punctually too strong compared to the production and the stocks which have strongly reduced during the confinement. A “purchasing power” boosted this time in part by a private debt that will have to be paid one day!
At the same time, sensing the good fortune of the resumption of our routines, the currency has found a new way to flee the other markets whose prospect of rise is more than limited. Commodities are the new Eldorado of magic money and speculation.
Money, like water, is intelligent, it always seeks the best slope. Its slope is profit and speculation. It is dynamic, it senses opportunities. It referees the slightest flaw, the slightest weakness, the slightest lack.
To understand inflation, which is one of the effects of the magic currency, we must not take a fixed image of the economy and draw conclusions. You have to be part of a film, part of a movement. You have to follow the money flow to finally understand it!
Today, central banks can no longer deny the effects of their misdeeds. The headlong rush is facing a wall: stop the magic money and risk the brutal fall of the markets; continue and risk the impoverishment of workers and savers.
