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Andreas Tögel: Loss of confidence in the state money monopolies

Andreas Tögel: Loss of confidence in the state money monopolies: “catastrophe boom”

eXXpress columnist Andreas Tögel knows that the world is facing an inflation problem has meanwhile reached the mainstream of economics.

editorial staff
10 March 2022 06:00

The fact that the world is facing an inflation problem has meanwhile reached the mainstream of economics. However, Christine Lagarde, as head of the ECB one of the most important figures in Europe in terms of currency security, does not see any problems. She says we are dealing with a “temporary phenomenon” and everything will be fine soon. Besides, we should be happy to have a job instead of whining about unearned interest.

To excuse the woman, however, one has to admit that, as a non-economist, she does not find it easy to grasp the cause and effect relationships of her monetary policy.

The head of the ECB is the wrong choice

The concept of “selective culpability” comes from the law of obligations, when an obviously unsuitable third party is brought in to settle a debt matter. This selection guilt is also realized when, in half of the EU, staid types of housewives who find it difficult to distinguish a blowgun from a mortar are appointed war ministers. And of course when you entrust an amateur with the monetary policy decisions of half a continent. Lagarde is a miscast.

What does the inflation of 5.1 percent shown in the official statistics mean?

With five percent price inflation, the purchasing power of a currency unit is reduced by a whopping 37 percent within ten years. With a three percent increase in inflation, it would be 24 percent and with the “inflation target” of two percent aimed for by the European Central Bank (which – one cannot accuse Ms. Lagarde and the other monetary alchemists of the ECB of a lack of humor – is equated with “monetary stability”) is the loss of purchasing power was 16.6 percent. So not little. The expansion of the money supply, which has been pursued by the central and commercial banks for decades, is having an effect. However, the inflation of 5.1 percent represented by an official shopping cart is only half the truth.

The price developments for real estate, securities, raw materials and precious metals are not recorded with the shopping basket. It is precisely in this segment, however, that inflation orgies are taking place, affecting all citizens – not just those who have to get into deep debt for decades to buy a condominium or a house. Tenants are also being burdened by the rising value of the properties they live in on the one hand and the explosion in energy costs on the other.

The Ukraine war as a boost to inflation

The introduction of the “hedonistic principle” for the valuation of consumer goods offers further possibilities to reduce the inflation rate. For example, the increase in the performance of electronic and technical devices is assessed as a reduction in price, while a deterioration in the range of services (such as reduced service or a shortage of space on air travel) is not assessed as an increase in price. If the price increases in the asset classes mentioned were included in the official price inflation rate, this would probably be well over ten percent and would thus come close to the annual expansion of the money supply. The war in Ukraine is giving additional impetus to general inflation, especially for energy sources.

“Disaster bull market” or the flight to more stable investments

In the 1920s, the economist Ludwig Mises coined the term “crack-up boom”, which can best be translated as “catastrophe boom”. At that time, in the time of hyperinflation in Austria and Germany, the flight of the citizens from the rapidly declining money manifested itself in the purchase of all kinds of everyday goods. Better to have additional household effects in reserve than worthless banknotes in your pocket tomorrow, that was the idea at the time. Now, a hundred years later and at a much higher level of wealth, buying another suit, a third television, or a fourth computer doesn’t seem very attractive. The flight movements of these days, which express an increasing distrust of state-monopolized fiat money, are therefore taking place in securities, in “concrete gold”, in precious metals and bitcoins.

According to Forbes, the amount of cash in circulation worldwide is around USD 7.6 trillion (EUR 6.7 trillion). The market capitalization of the gold available worldwide (around 205,000t, which corresponds to a cube with a side length of 22m) is around 10 trillion euros on February 22, 2022. The central banks hold 17 percent of it. The value of the Bitcoins “mined” up to February 22, 2022 amounts to around 646 billion euros. If Madame Lagarde & comrades continue as before, there is still a lot of room for improvement…

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