Is old-fashioned inflation pointing its ugly head again?



Have you noticed that the price of things is skyrocketing? Personal finance writer Jill Kerby examines consumer price inflation in this week’s Money Times column …

Consumer price inflation, that ever-changing basket of goods and services that is dumped by government statisticians rarely has much relevance to your personal basket.

For example, official CPI figures from the Central Statistics Office claim that overall, consumer prices rose 1.6% in the past year compared to June 2020. In the UK , their CPI rose 2.5% and in the United States, its benchmark (which excludes energy and food) up 5.4% compared to June 2020.

The main reasons for the rise in the price of things are that our economies are seeing increased spending after long shutdowns due to the pandemic, many economists say. Others also give credit to the skyrocketing increase in money printing by central banks since the pandemic began to support and stimulate struggling businesses. The rate of “impression”, or perhaps more accurately “digitization” of money, has far exceeded that created after the financial crash of 2008.

In the United States, their annual budget deficit is now $ 2 trillion and is expected to reach $ 3.13 trillion by the end of 2021. The US budget was last balanced under the Clinton administration . President Biden intends to add an additional $ 3-4 trillion in “stimulus” on top of the $ 1.9 trillion already in print since taking office. Most of this “money” is for large infrastructure, employment and social development projects. He cited President Roosevelt’s New Deal for the Great Depression program as his spending model.

To implement his massive deficit spending program and stop the collapse of America’s gold reserves as the preferred method of settling international trade, Roosevelt first signed Executive Order 6102 which required all Americans to trade their goods. gold coins, their ingots or certificates for paper dollars. The exchange rate given to them was $ 20.67 in paper dollars per troy ounce.

The following year, the Gold Reserve Act of 1934 ended all private holdings of gold and allowed Roosevelt to set the gold value of the dollar by proclamation at $ 35 an ounce. This massive devaluation of the US dollar put an end to the classic Gold Standard. When Richard Nixon ended this link in 1973, the price of gold floated on world markets. At the time of writing, it was worth $ 1,824 an ounce and, unlike any fiat currencies ever printed, it still retains its purchasing power.

The abandonment of the gold standard has enabled countries, businesses and individuals, through the printing presses of their central banks, to emerge from periodic economic depressions, not to mention finance countless unnecessary wars that have lasted decades (Vietnam, Iraq and Afghanistan, not to mention the wars on poverty and drugs) and leaving so many of us living beyond our means.

The consequence is an overwhelming volume of debt: America’s national debt now stands at C $ 27.5 trillion (it was C $ 500 billion when Ronald Reagan became president). Here in Ireland, where we rely on ECB printing presses to print new lines of credit to borrow from foreign lenders. The National Treasury Management Agency estimates that our national debt could reach 240 billion euros by the end of this year. It was 50 billion euros at the end of 2007.

Via “quantitative easing” – printing money to buy assets and debt to “stimulate” struggling European economies, the ECB’s balance sheet is now worth around € 7 trillion. This has helped stock markets soar and enrich global real estate investment firms as well as those of us fortunate enough to own personal pension funds and our own homes at the expense of those in the world. other side of the yawning wealth gap.

Return to the risk of inflation: the price of Irish housing and utilities, like electricity and gas, increased by + 4.1% last year according to the CSO, but transport costs are up by + 3.1%, healthcare costs of + 2.4% in June and restaurants and hotels of + 1.7%.

(The cost of food, the second most expensive expense for most people after housing, has fallen -1.9% since last year, according to the OSC offsetting some of those higher costs, but their arbitrary selection of food makes me question that number. My food costs seem much higher today than they were three or five years ago.)

Should we be worried about the return of the type of price inflation that we experienced in the 1970s and 1980s and which caused so much damage to businesses and jobs? (A recent Taxback.com poll found that 54% of Irish taxpayers polled regularly worry about money, and 40% are particularly concerned about unexpected financial events.)

Or have central bankers forever tamed the beast of inflation with their magic QE, decreeing that deficits and unpayable national debts no longer matter (except for small taxpayers)?

Next week:

Should you try to protect your income, pension funds or property against inflation?

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