In mainstream economics, too, there is a growing realization that inflation of 5.1 percent is a real problem (the “Exxpress” reported). At best, it is astonishing that Ms. Reinhardt and her ilk took so long before they, too – unlike the representatives of the “Austrian school”, who have been criticizing the careless monetary policy for years – smell the roast.
What is original about Carmen Reinhardt’s criticism of central bank policies is the accusation that they did not “react” to inflation in good time. How should they “react”? After all, they were and are the originators of inflation by inflating the money supply without restraint. If they hadn’t given in to the demands of politicians for years to constantly pump new liquidity into the system, the problem would never have arisen. Because it is not greedy entrepreneurs, as left-wing Senator Elisabeth Warren from Massachusetts claims, or adverse natural events to blame for inflation, but monopolistic money producers who issue legal tender in any amount the governments want. For decades, the money supply has grown much faster than the production of goods worldwide.
The father of the “economic miracle” in post-war Germany, Economics Minister Ludwig Erhard, found the following words: “Inflation does not come upon us as a curse or as a tragic fate; it is always brought about by frivolous or even criminal policies.”
Senator Warren claims that corporations cause inflation by raising prices at will to increase profits. Rarely has an assertion been made that has been clouded by so little economic understanding. Because even if one disregards the fact that the competition never sleeps: even the largest multinational corporations would be left with large parts of their production in the event of arbitrary price increases and under otherwise identical conditions (i.e. with unchanged money supply), because then the money for their acquisition was missing. Even Koko the gorilla would have realized that Mrs. Warren is attacking the wrong addressees (look here).
Debtors whose liabilities are devalued are the beneficiaries of an inflationary monetary policy. Who are the biggest debtors? Not companies or private households, but states. And who determines – directly or indirectly – the monetary policy course of the central banks? In the case of the USA, England, China or Japan, the respective government. In the case of the EU, the Commission and the European Parliament. This is proof in the sense of Ludwig Erhard: Politics has a hand in the cradle of inflation.
Two quotes from former Federal Reserve Chairman Alan Greenspan sum it up: “The United States can pay off any debt because it can always print money to do it. So there is no chance of non-payment.” The dream of the alchemists came true: the central banks may not create gold, but they create money out of thin air. From before Greenspan presided over the FED comes the following wisdom: “Without the gold standard, there is no way to protect savings from inflation siphoning. There is no safe store of value.”
Money supply on both sides of the Atlantic has increased tremendously since 1971, when the US dollar was last pegged to gold. However, many of our contemporaries are no longer aware that a larger amount of money does not lead to more prosperity. Globally, the understanding of the value of “real money” seems to have been lost. The grandparents of the baby boomers were able to tell their descendants first-hand about the hyperinflation experienced 100 years ago: financial assets were destroyed, the middle class was ruined and the way was paved for political totalitarianism. Apparently nobody cares anymore.
An expansive monetary policy cannot be pursued in the long term without negative consequences. That was evident 100 years ago and it is no different today. The First World War was financed with the printing press – with catastrophic consequences. Today, a war against all economic reason is financed from the money press – the “Green Deal”. The sad consequences are inevitable. Conclusion: Inflation is here to stay.
