[Skybird]

https://chrisveber.blogspot.com/



If a doctor misdiagnoses a disease, there is a high probability that his treatment will not improve the patient's situation. This also applies to the so-called guardians of our currency.

In Europe, the devaluation of money is exploding. Inflation is reaching a level that will soon make it impossible even for the middle classes to finance their daily lives. So the European Central Bank (ECB) will raise the key interest rate to get inflation under control. However, I believe that in doing so, the ECB is pouring gasoline on the fire.

The ECB assumes that, according to classical doctrine, the increase in the price of money as a commodity will lead to a slowdown in growth and thus inflation. It also assumes that inflation is largely based on an oversupply of capital. After all, the ECB has inflated its total assets from 1.5 trillion euros in December 2007 (before the 2008 bank bailout) to 8.78 trillion in April 2022. This flood of money has indeed already led to inflation, but until now it was called "rising stocks and real estate values," was popular among the very wealthy, and (except for real estate prices) had no impact on the lives of ordinary people or companies. Because the flood of money never reached them. Or do you know an employee or a carpenter whose bonds were bought by the ECB? Or a plumber who was able to draw down capital interest-free?

So if we have had an interest-free money glut for 14 years, why are prices in the real economy only now rising? Because the unchanged purchasing power of ordinary people and companies is only now coming up against a drastically tighter supply of goods and thus driving up prices.

In my opinion, there are two reasons for this. The Corona "measures" and the "energy turnaround," i.e., the shortage and increased cost of energy.

The Corona lockdowns have permanently destroyed global supply chains. Anyone who has tried to buy anything lately, anything at all, be it a Playstation 5, a car or even a bicycle, will know what I am talking about. Even home builders have found that there is simply a lack of everything. The global economy is a highly complex and interconnected system that cannot simply be turned on or off at will - as quite a few of our politicians and "experts" apparently believed. Repairing the damage done by the Corona "measures" will take years. But only if this insanity is not continued and supply chains can finally settle down.

The "energy turnaround," on the other hand, has led to a jump in gas prices in particular. As of mid-year 2021, the Dutch TTF gas price (a reference price in Europe) has risen, with a nice peak after September 26. What happened in 2021? In June, the European Climate Change Act was approved by EU ministers. And September 26 was the German federal election. So it was reasonable for gas suppliers to assume that achieving the "climate targets" and Europe's largest economy phasing out nuclear and coal would lead to increased demand. Gas prices were rising long before Putin's invasion of Ukraine. By the way, gas supplies from Russia and transit from Ukraine were uninterrupted until recently (since April 27, gas has not been supplied to Poland and Bulgaria), so the gas price increase can be attributed to speculation rather than shortages.

But rising energy prices are not a problem for our governments. After all, less should be consumed. For the sake of the climate. What our governments have not considered is that energy and gas are necessary for any economic activity. For the transport of goods as well as for the production of artificial fertilizers. Producers like BASF or Yara have already completely or partially stopped the production of artificial fertilizers in the fall of 2021. Because of gas prices. Less fertilizer leads firstly to less food production and secondly to higher fertilizer prices for farmers. Which in turn will both cause consumer prices to rise rapidly.

Perhaps our governments should have taken a look at a satellite image of Africa at night before deciding on various energy changes and taxes. There you can see what energy poverty and a "supply-oriented energy supply" mean. Poverty. Shortage. Which, by the way, is also a reason for migration from Africa to Europe. Polemically, at least migration will then stop when Europe has reached the economic level of Africa.

The inflation that can be felt in everyday life is therefore due to the economy's lack of production, which has become deliberately more expensive. Now the ECB is raising the key interest rate in order to curb economic growth, thus throwing an additional cudgel between the legs of production, which will make supply even more difficult. I'm not one hundred percent sure that's a good idea. Small and medium-sized businesses, in particular, are already battered enough by the Corona "measures," and an interest rate hike could be the final push into the abyss for many. And the increase in the cost of money as a commodity, which like energy is included in all products, would of course be passed on to consumers.

What an interest rate hike could do is cause the euro exchange rate to rise against other currencies. And thus a cheapening of imports. But whether this rise would offset the burdens is uncertain. Just as any economic "science" is uncertain because it is a social science. It humanizes, forecasts should be read with as much caution as the predictions of Corona modelers.

What would really combat price increases would be a sure end to all Corona "measures," a rollback of tax increases on energy, and an acknowledgement that an industrialized continent cannot run on wind and solar.

Incidentally, there will be great wailing and lamenting in the financial markets if the ECB scales back its bond purchases and shrinks its balance sheet. But dividends will continue to be paid, and falling housing prices should not be the biggest problem of all.

Translated with www.DeepL.com/Translator (free version)