[Skybird]

The gallopping inflation is not a consequen ce of the Ukreqiane war , nor of the Corona pandemic, as many people think and givenrments and centela bankers argue. It has been in the making since decades, and was just artifically cosmetically glossed over, suppressed, hidden. Putin only served as a catalyst to speed things up, so did the pandemic. Without these, the develoolment wpould have been the same, just slower incoming. The pressure in the kettle now is to high, thats why th security valves burst.
Solution? I know only one. Let it run and raise interest rates NO MATTER WHAT that means for single states - and hope you are amongst those hwo make it throphgh in one pice. The accumulated sins of thirty or fourty years of criminally irresponsible monetarian policy are now raining down on us.



FOCUS writes:


The inflation currently prevailing in many parts of the world has recently been widely associated with the war in Ukraine. The ECB sees the Corona pandemic as the reason why prices had already risen significantly before that. But the reasons for inflationary pressures across the board lie deeper.

Since the middle of 2021, inflation rates have risen significantly worldwide. For May 2022, inflation was measured at 8.7 percent for Germany and 8.1 percent for the euro area. In the USA, 8.6 percent was reached in May 2022. Consumer prices have also risen significantly in many developing and emerging countries. Egypt reported a value of 13.1 percent in April 2022, Brazil 12.1 percent and Sri Lanka as much as 33.8 percent.

Inflation: war is often cited as the reason

Still, there were some countries with low inflation rates: In Japan, China and Switzerland, inflation rates remained low at 2.5 percent, 2.1 percent and 2.5 percent, respectively, in April 2022. Where are the global inflation pressures coming from, and what are the differences resulting from?

Recent global inflationary pressures have been widely linked to the Ukraine war due to sharp increases in energy, commodity and food prices. U.S. President Joe Biden has therefore attributed seventy percent of inflation in the U.S. in the month of March to Russian President Vladimir Putin. In light of the war, the European Central Bank (ECB) has also explicitly pointed to the importance of soaring energy prices for high inflation in the euro area. ECB President Christine Lagarde believes that the fact that the inflation rate had already risen significantly before that was due to the Corona pandemic.

Inflationary pressure has been building for 30 years

But the reasons for the inflationary pressure on a broad front lie deeper. It has built up over a period of more than thirty years, as interest rates were cut sharply in crises starting in the U.S., but not raised to the same extent in the recovery phases after the crises. Since every devaluation of the dollar put upward pressure on the other currencies in the world monetary system, most central banks have followed the U.S. monetary expansion course since the 1990s. The global money glut is now reflected in rising producer prices worldwide and - only partially! - in sharply rising consumer prices.

For many industrialized countries, inflationary pressures were for a long time not visible in official consumer price indices because of the way inflation was measured. Since the 1990s, starting in the U.S.A., there has been a push for quality adjustment in inflation measurement. Statistical authorities have increasingly used quality improvements - for example, in industrial products such as cell phones and computers - as an opportunity to adjust prices measured in stores downward in the price statistics.

At the same time, quality adjustments in the form of extrapolated prices have not taken place for other product categories where quality losses can be suspected - for example, services, where self-service has increased significantly, or food, where production methods have become less sustainable.

Failures to measure inflation

Similarly, the weights of the goods represented in consumer price indexes have been adjusted to reflect changes in consumption patterns. This is likely to have led to the gradual replacement in the price indices of expensive goods with high price increases - such as solid wood furniture - by cheap goods with low price increases - such as pressboard furniture for self-assembly. Important groups of goods such as real estate, stocks and public goods (for example, roads, old-age pensions and airports) remained excluded from price measurement altogether. In the euro area, in contrast to other countries such as Switzerland or the U.S., even owner-occupied real estate is excluded from inflation measurement, although the ECB has contributed to a significant increase in real estate prices with persistently low interest rates.

In many countries, subsidies play an important role in keeping store prices stable for a long time. The ongoing low, zero and negative interest rate policies of central banks have subsidized companies around the world, which have been able to pass on the interest rate subsidies in the form of lower prices. Similarly, numerous crises in many countries have undermined the bargaining power of unions, allowing wage costs to be kept under control along with price pressures. Almost all industrialized countries subsidize agriculture, which keeps food prices low.

Subsidies artificially depress inflation

Subsidies have reached a particularly large scale in Japan, where the state has gained enormous additional spending leeway since the bursting of a stock and real estate price bubble in the early 1990s thanks to immense government bond purchases by the Bank of Japan. According to estimates by the Washington International Trade Association, over forty percent of Japanese farmers' income comes from the state. Generous aid to rice farmers has contributed to a significant drop in the price of rice in recent years. In addition, wheat, soybeans, buckwheat and rapeseed (also used as animal feed) are subsidized.

Other subsidies are found in rail transport, which plays an important role in densely populated Japan. Government aid has depressed school and university fees since 2009. Demand for cars has been repeatedly boosted by subsidies - most recently for electric vehicles - so that their prices have remained largely constant since 1990. Fast-growing government co-payments have dampened health care price increases. Government-controlled prices for water and electricity have also risen only weakly. In response to the recent steep rise in crude oil prices, wholesale gasoline prices have been subsidized.

China is pumping a lot of cheap liquidity into the corporate sector

China is moving in a similar direction. There, in contrast to the USA, the recent sharp rise in producer prices has not had a noticeable impact on consumer prices. This is probably due to the fact that the Peoples Bank of China is pumping a lot of cheap liquidity into the corporate sector via the state-controlled banking sector and local governments in response to the Ukraine crisis. Prices of public services - which dominate the services represented in the price index - and prices of industrial goods - which are often produced by state-owned enterprises - appear to be set with the central government's inflation targets in mind. Most recently, comparatively restrictive fiscal policies as well as corona lockdowns are likely to have dampened politically dangerous inflationary pressures.

With the latest price surge, driven primarily by energy prices, the East Asian model could now also be setting an example in the European Union. The low inflation in France by European standards is probably due not least to the fact that gas and electricity prices were already capped there last fall. In January 2022, the government in Paris decided to limit the price increase for electricity to four percent this year. In response to soaring inflation rates, many countries in the European Union are now also introducing comprehensive subsidies. These include direct payments to citizens - such as the one-off 300-euro payment for each income tax payer in Germany - and subsidies for energy, which pushes down prices for consumers.

Germany has reduced the energy tax on fuel to the European minimum for three months and suspended the levy for renewable energy plants (EEG levy). The nine-euro ticket will reduce prices on local public transport for three months. Austria plans to reduce taxes on gas and electricity for households and small businesses. Hungary's Prime Minister Viktor Orbán has cut electricity and gas prices by 25 percent and capped prices for wheat flour, sugar and milk.

The Netherlands made a one-time reduction in energy taxes and will cut the VAT on energy from 21 percent to nine percent starting this summer. Poland has reduced the VAT rate on gasoline and diesel from 23 percent to eight percent. The Czech government has eliminated road taxes. Romania has capped prices for electricity and natural gas. In Italy, network charges are eliminated and 25 cents is refunded for each liter of fuel. In Spain, the refund is twenty cents, while in Portugal the government sends out gasoline vouchers.

Switzerland finds a special way to combat inflation

Switzerland, which is considered a safe haven for capital inflows in the global inflationary environment, has found a special way to keep prices low. If the large capital inflows were to remain in Switzerland, it would both push up stock and real estate prices sharply and fuel credit growth and thus inflation. But by keeping interest rates well below those in the U.S., the Swiss National Bank is encouraging large-scale capital outflows that dampen domestic inflationary pressures.

Moreover, if the Swiss National Bank allows the Swiss franc to appreciate, as it has done in recent months, the prices of imported goods will fall. The pressure on domestic companies and domestic trade to keep prices low is growing. Swiss citizens have therefore benefited in the past from significantly lower inflation rates than citizens in the euro area.

While the quantity of subsidized goods appears to be growing over time in many countries, the financing of rampant government spending remains an open question. With coffers widely empty and cuts in other areas of spending unpopular, many governments in the euro area - as in the case of Japan - appear to be relying on additional debt and thus on the ECB's purchase of government bonds. However, this continues to grow the money supply, which is likely to push inflationary pressures even higher in the longer term.

ECB must raise interest rates

There is only one way to escape this vicious circle: central banks must raise interest rates. Since this limits the spending scope of the highly indebted euro countries in the medium term and is bad for the economy, the ECB still seems reluctant to take decisive steps, despite the first announced interest rate steps. By contrast, many other central banks have already embarked on a clear course of interest rate increases. In the USA, the Federal Reserve (Fed) has ended its bond purchases in light of high inflation rates and signaled numerous interest rate steps for 2022.

The Bank of England has already raised interest rates several times. Sweden's Riksbank has made a fundamental change of course and brought forward the timing of its first interest rate hike. Central and Eastern European countries with reform experience, such as Poland, the Czech Republic and Hungary, have also raised interest rates. It remains to be seen whether these central banks will sustain their monetary tightening courses in light of growing economic and political instabilities that are likely to be associated with the rate hikes.

Regardless, one thing is certain: historically, excessive government spending and persistently loose monetary policies have been associated with economic and political instability. Hiding inflation with the help of subsidies and price controls may justify persistently loose monetary and fiscal policies in the short term, but it does not solve the problem of excessive spending commitments. It is therefore to be hoped that the announcement of interest rate hikes in the U.S. and many other countries heralds the start of a global monetary and fiscal stabilization process.

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

While the ECB now has started to raise interest rates - too late, too slow, too little - it also has alraedy said it prepares to stick to its self-chosen but by law and treaty unlegitimised(!) role of financing states in the south like Italy, Greece, but also France, wanting to enforce that interests that states with high debts must pay for risk compensation do not become "too high", in the devine ECB's judgement at least. That is money socialism at its purest level, pure planned economy. It also means that the ECB already prepares its own exit from the money reducing measures it now tries with raising interests, by preparing to pump even more money into the ECB zone with its new intended means to prevent a too huge spread of interests for national state bonds. It sabotages its own interst raising that way!

All this can and will not go well, but lead into desaster. Russia is our smaller problem, Italy, Greece and especially France are far more worrying conerns of ours. At least they should be!

I predict social unrest and riots in the street within ten years, probably significantly less. I do not even rule out civil wars and even wars between former EU member states in the long run. And all that socialist Eiteitei and Ringelpietz mit Anfassen they will try until then will not change that. Things have started to move in large now, and the momentum now is beyond the point where you still could stopp things from starting to slide and form an avalanche - even less so with such incometent clueless and irrepsonsble carriocature sof political leaders at the helms everywhere, from national governments to international institutions. EVERYTHING NOW SPEAKS AGAINST US. In an useless bid to nevertheless try to stop the momentum states will turn increasingly totalitarian and socialist. That will fail in the end, but kill freedoms and civil liberties, and private property rights. After these - the middle class will have been mostly annihilated by then - the radicals from the other end of the spectrum, in some countries also religious fanatics, will raise their ugly heads.

The EU as known today has already lived the better share of its life, its now in its end game. This end game will run for one or two decades, but the end game it nevertheless is. The Euro will collapse earlier. Before end of this century Europe will have become completely irrelevant for all and everything, and will be nothing more than the running joke of global politics.