Inflation Can’t Be Justified Only by the COVID and the War in Ukraine. Others Force Play ...
The next few months will tell us if we will see a real wave of inflation.
Prices are now galloping at nearly 10% per year in advanced countries. Even without the costs of energy and food, the increase exceeds 6%. This is an extraordinary reversal. For almost twenty years, prices had been rising at a gentle pace of around 2%, in a climate that seemed rather deflationary. In this respect, the current surge is very different from that of the 1970s. At that time, the atmosphere was inflationary. In the United States, the leading economic power at the time, prices had been accelerating since 1967, against the backdrop of the war in Vietnam. Nothing like that this time, where the break is brutal.
A megatrend that has been completely overhauled
The most reputable experts admit they missed the turn. Janet Yellen, the U.S. Treasury Secretary who previously chaired the U.S. central bank, said it best when she backtracked on her official statements last year: “I was wrong at the time about the path inflation would take”.
What happened to upset a firmly established megatrend? It was the horizon that shifted. For many economists were anticipating a rise in inflation in the long term, for several reasons. The term has suddenly moved closer, to the point where it seems to be falling on our heads.
The starting point is of course the COVID-19 epidemic. To limit the spread of the virus and the overcrowding of hospitals, governments around the world closed factories, schools, and borders. If the movement was general, each country had its modalities of action and its calendar. The result was a gigantic mess, very visible in the sensitive links of the long global supply chains. Like electronic chips, which have become indispensable in many sectors. Or sea freight, with crowds of containers that were not where they would have been needed.
Six months ago, this profound disorganization seemed to be on its way out. Companies were gradually finding their feet and suppliers were seeing a return to more normal conditions. But Russia's outbreak of war in Ukraine and the tightening of containment in China following the spread of the more contagious Omicron variant have caused a whole new round of shortages - and it's not over yet.
A mess, however monstrous, is not enough to reverse a megatrend. Two other forces have come into play. Foreseeable forces, foreseen even ... but they had to come on more gradually, and later.
A very fragile model
The first of these forces is the return of the globalization pendulum. In the two decades preceding the great financial crisis of 2008, world trade grew twice as fast as production. China was growing in power, and the Internet allowed information to circulate and thus allowed for longer and less costly production chains.
The acceleration of globalization has weighed on prices year after year. China's primary export has long been deflation. But this model had been in question for more than a decade. First, because it is fragile - the slightest border closure becomes catastrophic. Secondly, it produces social damage that is not well controlled. Hence the political backlash, which contributed to the Brexit and the election of Donald Trump, among other things.
Since then, companies have been examining the possibilities of regionalizing their production or even relocating it. But they always came up against the question of costs. This inflation was constantly pushed into the future.
But the epidemic and then the war changed the situation. States want to regain control of production deemed essential, and the list is much longer than previously envisaged. Companies know that they will have to find a new point of balance between efficiency and solidity more quickly than expected, which will inevitably result in higher costs.
The second force is the ecological transition. Since the “Greta Thunberg year” (2019) and the epidemic, states have decided to move faster in the transition. Industries are switching, such as automotive. Even the aeronautics industry is getting involved.
Supply and demand are misaligned
This transition will result in thousands of billions of euros or dollars of capital being moved. And by misalignments between supply and demand, which will push prices up. Today, oil producers are reluctant to invest in new fields, which contributes to the scarcity of supply and pushes up prices.
Tomorrow, other adjustment difficulties will arise for “transition metals”, which are essential for the construction of batteries and wind turbines. Following the fivefold increase in the price of lithium in just a few months, new production capacities will come on stream. Supply could then exceed demand, before the ramp-up of electric car manufacturing causes shortages again ...
So there is not one inflation, but three. These come from disorganization, regionalization, and transition. The climate will be permanently favorable to price increases. It remains to be seen whether the surge in wages will signal a real wave of inflation.
Only time will tell.
Some reading
Want To Know How To Trade Bitcoin With Success? Follow the Whales. An interesting phenomenon to observe for several weeks now.
Inflation Is an Opportunity — Use These 5 Inflation Hedges to Take Advantage of It. Every situation represents an opportunity for those who take the right view.
History Often Rhymes — Lessons for the US Dollar From the Collapse of the Roman Denarius. For some, America is in the midst of a modern Diocletian moment.
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New Zealand tech CEO, Kim Dotcom did the math on the United States’ sovereign debt and he tweeted a thread about it, saying it may the most important thread that he may ever make.
Kim explains that US spending and debt have spiraled out of control and the Government can only raise the money it needs by printing more of it, which means that hyperinflation is guaranteed.
He says this has been going on for decades and there’s no way to fix it and that the US got away with this for so long, because US dollar is the world’s reserve currency.
When the US Government prints trillions, it is thereby robbing Americans and the entire world in what he calls the biggest theft in history.
He says the total US debt is at $90 trillion, which together with $169 trillion in US unfunded liabilities totals $259 trillion, which is $778,000 per US citizen or $2,067,000 per US Taxpayer.
Now, the value of all US assets combined: every piece of land, real estate, all savings, all companies, everything that all citizens, businesses, entities and the state own is worth $193 trillion.
Our total debt, $259 trillion minus our total net worth, $193 trillion equals negative $66 trillion of debt and liabilities after every asset in the US has been sold off.
So even if the US could sell all assets at the current value, which is impossible, it would still be broke.
This is where the ‘Great Reset’ comes in and he asks, “Is it a controlled demolition of the global markets, economies and the world as we know it? A shift into a new dystopian future where the elites are the masters of the slaves without the cosmetics of democracy?”
He notes how the world has changed so much in recent years and how nothing seems to make sense anymore.
He sees the blatant corruption and the obvious gaslighting propaganda media and the erosion of our rights but he doesn’t know where it’s all going and he finishes the thread asking, “What’s the end game?”
As Harrison Smith from the American Journal says, “It’s a pyramid scheme. The people perpetrating the pyramid scheme are in charge of everything…they’re going to sacrifice humanity in order to maintain their system…
“The world economy is being collapsed, the food supply system is being destroyed, the energy that we rely on to maintain civilization is being curtailed and eliminated and we’ll be forced into the Great Reset where we will own nothing.”
Former BlackRock stockpicker, Ed Dowd believes that the entire COVID sham was created as a cover for the financial collapse and that new lockdowns are coming, to try mitigate the inevitable violence and chaos that we can expect to be witnessing in the streets.
We also saw how Dr Mike Yeadon, former Pfizer VP also believes that COVID and the death shot are an elaborate hoax to engineer a collapse of sovereign currencies to bring in the Great Reset and the introduction of programmable central bank digital currencies (CBDCs), for a wholly-controlled population, in which people will not be able to buy food, etc. unless the algorithms permit and the undesirables can basically be starved to death via artificial intelligence.