From which side should there be danger at the moment? About a hot war between Russia and Ukraine? Another storm of migrants? Or maybe even from lasting damage to the political system through a deep social division driven by both the government and the opposition?
Whatever the case, one thing is certain: we are just witnessing a rate of monetary devaluation that has not been seen in decades. In the meantime, even the mainstream media has smelled the roast: Whether it’s “Neue Zürcher,” “Die Presse”, or local provincial newspapers – there is hardly a day in which the increasing loss of purchasing power of money is not discussed.
The “Deutsche Wirtschaftsnachrichten” write of an “inflation tsunami” and mean literally: “Investors’ assets will burn up.” And further: “How the Fed is plunging the world into the abyss with its monetary policy.”
In one of his “Insights”, to which he invited the prominent economist and former head of the Munich Economic Research Institute (IFO), Hans-Werner Sinn, the journalist and author Roland Tichy brings the original comparison of inflation with a ketchup bottle, from which initially nothing wants to come out, but then suddenly an unexpectedly large amount. An apt comparison. Unfortunately, our society has completely lost its memory of inflation. Unfortunately, it is largely forgotten that galloping monetary inflation in this country and Germany has ruined the middle class and led it straight into disaster. The (unsuccessful) Munich coup attempt by the National Socialists in November 1923 was a direct consequence of the preceding hyperinflation.
Sinn points out that the money supply in the euro area has increased from 880 billion to over six trillion euros in the past 13 years as a result of various state and euro rescue operations, as well as pandemic-related programs – that is, sevenfold! ¾ This money, created out of nowhere, was “invested” in government bonds – in other words, it was illegally consumed with the banknote press to finance the state.
The glut of money and the dictates of zero interest rates make it increasingly difficult for private small investors to find low-risk and at the same time value-preserving investment opportunities. The time for the popular savings instruments savings book and life insurance is over.
According to the Maastricht Treaty, the European Central Bank (ECB) has the task of maintaining price stability in the EU, but sees this achieved with an annual inflation rate of two percent. In plain language: The ECB is actually acting as an inflation authority.
Now, at least as a disciple of the economist and inventor of “deficit spending”, JM Keynes, one can approve of a temporary increase in the amount of money in order to compensate for private shortfalls in demand. But we are not seeing a lack of demand in Europe at the moment, but – on the contrary – an “inflationary overheated economy”, as Sinn emphasizes. And literally: “To step on the gas or fiscal policy in this situation would be insane!” That makes sense, because it would lead to nothing other than a further erosion of purchasing power – without, however, having a positive impact on production and employment levels .
America seems to have recognized that. The FED, the US central bank system, has just started tapering and is scaling back its purchase programs. The head of the ECB, Christine Lagarde, on the other hand, considers it premature to abandon the inflationary policy of her organization as early as 2022.
Not only protagonists of the Austrian School of Economics have been calling for a long time to end the bond purchase programs and zero interest rate dictates and to return to a solid monetary policy. To think that once inflation has got going, it can end with a few clicks of the mouse will prove to be an illusion. Once the trust of the EU citizens in the purchasing power of the euro has been destroyed, things will go as they did in 1923.
The euro may already have its future behind it. As noted at the beginning: Optimists are betting on gold in this situation. Adventure seekers on bitcoins.