Two months ago, the president of the Federal Reserve of the United States, Jerome Powell, announced a rethinking of monetary policies in order to create jobs. In other words, the 2% (yearly) target will be softened to allow for lower levels. Which really means that interest rates will stay low for much longer and even become negative. These types of measures are taken to compensate for the imbalances caused by a crisis and, in this specific case, to encourage consumption and employment based on inorganic liquidity. This strategic bet generated rises on Wall Street, as expected, the fear that the cash reserves of thousands of investors would lose value due to inflation took the sp500 to all-time highs. However, this attempt to push the broken world financial system further will cause negative and perhaps irreversible repercussions.
Inflation is always a controversial and very complex issue. For conservative banking monetarists, inflation is a bad but necessary thing. They take inflation as a phenomenon with positive and negative consequences. Keynesians see it as very necessary to stimulate the growth of a country. But in reality, it is neither necessary nor positive, and it is caused only and exclusively by monetary policies, it is something inorganic, manipulated, a tax that only breaks the natural monetary order of money.
The term inflation can be understood as the increase of something, mass, quantity, volume, inflating something is in an inflationary process, one could say, its way of measuring it would be to see or feel it, on the other hand, in the financial aspect inflation is I coin at the end of the price increase as the money supply increases, because it is the only way to really measure inflation because nobody could count the number of bills in circulation, the price is the maximum indicator of inflation, if the products rise in price with respect to the said currency, it can be said with certainty that there is inflation.
For example, a common car in dollar terms in 1950 would cost $ 1,600 and now it would cost about $ 21,000, and if we put the value in terms of Gold (an almost deflationary asset) a car would cost 50 ounces of gold ($ 32 / o ) and would now cost 11 ounces of gold ($ 1960 / o), which means that keeping money is dangerous if not stupid without earning long-term interest.
And of course, some confused ones may argue that the technological factor causes the price to increase … totally wrong argument, technology decreases the cost of production and speeds up processes, what changes is the value of inputs and that is very easily demonstrated and if not They like the example, we could use the price of a Big Mac or a guitar in the same time range, so how did the world allow this delusion? Why do they need inflation? There must be something, a reason …
Yes there are and many, but believe me that each one is more stupid and malicious than the previous one.
The world never required inflation, the Gold Stantard or Gold Standard and the increase in productivity that this genre in the United States is proof of that, in this system the dollar was backed by gold, it means that you could exchange your bills for gold and have the assurance that there would not be some kind of malicious handling by the central bank, your notes were worth gold and their limit was set by the level of circulating gold.
The main problem that the Keynesians observed in this pattern was their restriction to apply fiscal policies, as they did not have control over the currency, liquidity crises in the state could only be solved by increasing taxes or decreasing public spending. This led Nixon to leave the gold standard, his intention was to return by ending the fiscal deficit but, as is known, to achieve his objective, the United States will never return to this pattern.
By breaking this monetary agreement, the Keynesians could resort to more expansionary monetary policies, increasing public spending, therefore employment and taxes, these are directly and indirectly responsible for all financial crises since 1971, the power of the state over the people and the market was never bigger and promoted a current of monetary control around the world, the United States, even being the most important country in the world, has decreased its productivity by 30% since 1971 and the world followed.
Economic theories are taught in the world to glorify current monetary policies, the Phillips curve, the Gini index, monetary theory in general only fuel this state indoctrination that destroys the value of money and taxpayers’ savings.
Friedman empirically demonstrated the error of applying inflationary policies to increase employment, since it only works in the short term and there is no analysis of the monetary repercussions of this. On the other hand, trying to combat inequality in a country with public spending would only lead to one possible result, an increase in poverty in the country. Greater inequality between rich and poor but fewer rich.
But it is not the only reason, as I said, there are many, the cash or bank reserve ratio makes the non-existent money circulate in the market.
Banks do not keep immobilized funds in their facilities because they understand this, so every bank takes a large part of the money deposited and tries to invest it, either through credits, in the stock market, or in bonds.
A bank cannot invest all the deposits that savers give it, since this could lead to liquidity failures or bankruptcies of the institutions. To prevent these situations in a certain way (among other reasons), the regulations issued by the central bank oblige banks to keep a percentage of deposits in their coffers.
The banking reserve © is equal to the percentage between the assets of the banking system or reserves (A) and the deposits delivered by the savers to the bank (D).
This means that a coefficient of 1% means that for every $ 100 that we deposit in savings in an entity, it maintains $ 1 as legal reserves (A) and has the ability to invest or grant credits worth $ 99. A most legal scam. Non-existent borrowed money and your savings as insurance.
Another reason why they need inflation is its divisibility, the amount of money in circulation might not be enough due to the increase in the number of users, a rapidly growing country needs to have a divisible currency, but the problem comes when trying to divide what indivisible, a penny is not divisible, it is much easier to add more paper in the market.
And the last reason they need inflation is taxes.
The trust of a currency lies in the citizens, this trust is always organic, It happens with gold, silver, bitcoin, copper, etc. Without going into the subject, which is the theory and history of money, it is known that for something to have value as a currency and serve as an exchange it has to be accepted, but how did we come to trust a paper with some drawings? Something imposed and worth the redundancy they used the taxes to validate it, we are all obliged to pay taxes in the local or chosen currency, on that side the trust is given by an obligation and custom. Now if they control the currency, but do not want to increase taxes to avoid a march or protest, all they have to do is inflate the currency, the money issued is practically a tax that was paid without collecting anything.
Now, the dangerous thing about inflation is that it can come without warning and very quickly.
The quantity theory of money of Martín de Azpilcueta, this theory is also used by Keynesians to predict inflation, but it is totally unpredictable, you can cause it, but not knowing when it will arrive, this is why it is so dangerous. This formula is good for describing how inflation is generated, but not for anything else.
This theory establishes a relationship between the amount of money and the real variables of the economy. The basic expression of the quantity equation is the following:
“M” : the amount of money
“V” : the speed of money circulation
“P” : the price index (measured by the CPI or by the GDP deflator)
“Y” : the product or national income in real terms (measured by real GDP)
The amount of money increases and the inflationary process begins, but there is a factor that cannot be controlled and that is the reason why I maintain the above, the speed of money circulation is totally unpredictable, this is the indicator that both the Money changes hands, you can encourage people to spend and consume, but you can’t tell when it will work.
The strictest monetarists assume that the velocity of money is stable and that changes in the money supply only influence the price of products (plus inflation) and not higher production. Keynesians, on the other hand, believe that an increase in the money supply can have a positive effect on production. The increase in prices is only partial since the circulation of money is not constant and absorbs part of the impact, for them the “goal” is stability. This implies that in the face of “imbalances” corrective measures must be taken. And I put imbalance in quotes because there is no imbalance as such that needs a correction, they seek monetary stability, but that as such does not exist, nor should there be, a form of fair exchange should be governed by the maximum arbitrator, the market. Price manipulation seeking stability is a common practice in this Keynesian system, because if the currency rises in value it would be very difficult to make low-cost products buy and as I wrote earlier, they would have to reinvent a more divisible currency each time. let this happen.
Knowing the consequences of monetary policies puts you in front of millions of people who still trust their banks, every quarter central banks receive data and increase or decrease their strategies according to the information they receive, but something is certain, there is no turning Back, since 1931 such waste and public debt was never seen in the world economy. The only thing that remains is to abandon the boat, for this Bitcoin was created, so that the damage towards those who have no voice or vote ends.
Stay safe. Manage your risk and get comfortable in the chaos.