Recently, the global phenomenon of rising prices has attracted a high degree of attention from everyone. The topic of inflation is hot and it can be said that everything is soaring, and this trend is becoming more and more obvious, whether in China or the United States. Although the Federal Reserve and the U.S. Treasury Department have repeatedly denied inflation, it is safe to say that inflation is still coming on strong.
The global inflationary trend is already raining ……
We know that the global central banks are now implementing the MMT (Modern Monetary Theory) model, that is, unlimited water release, meaning that whether it is the people or business, or asset markets, the central bank unlimited money supply, there will be no debt break problems, money management. Under this model, it is true that the possibility of financial crisis is by definition reduced. However, the printing of credit money is essentially the debt of the central bank, and the release of paper money has a natural enemy, namely rising prices, or inflation in written terms. Let’s start by looking at the current global inflation situation.
Affected by the epidemic and other natural disasters, the production supply is seriously inadequate, the price of raw materials continues to rise, coupled with the United States-led central banks of various countries to release water, the people’s livelihood of inflation has quietly arrived. In addition to the familiar McDonald’s has increased prices, global consumer goods, food and feed, smart electronics, chips, etc. have been announced or expected to increase prices one after another, meaning that the wave of central bank rate hikes fears an early arrival – a very bad omen.
Global raw material costs have been soaring lately, and the consumer goods industry has set off a wave of price increases! In addition to China’s paper manufacturers, who raised prices in April, U.S. diaper and paper towel manufacturer Kimberly-Clark announced price increases for all of its products in the U.S. starting in June, from infant and toddler to adult care products and even toilet paper, with increases ranging from medium to high single digits. Many U.S. media are alarmed that Americans will feel the pressure of rising toilet paper prices.
In fact, dozens of publicly traded companies in the United States have issued warnings of rising inflation, including supply chain bottlenecks, rising raw material costs, and labor costs began to rise. Manufacturing giant 3M said the cost of air and land freight is elevated; retail giant Wal-Mart stressed that U.S. ports are crowded; mobile home and housewares makers said the cost of wages is on the rise. In short, the reasons for the price hikes vary, but they are basically the same. Due to the impact of the Suez Canal being blocked, global shipping costs, which were already soaring, have risen sharply again, which has further pushed up global prices.
Speaking of price increases, of course, to say food. When it comes to inflation, you can’t help but be concerned about food prices. U.S. cereal acreage is expected to be lower than expected this year, raising supply doubts, once again pushing up corn prices, futures surged to a new high of more than 8 years, soybean futures prices are also approaching a 7-year high. Market worries once these key feed agricultural products supply tension, will fuel the global food prices continue to inflate.
According to the U.S. Department of Agriculture’s latest forecast, the total planted area of corn and soybeans this season, will be about 2 million acres less than originally expected, prompting corn May futures in April 5, the next day still rose strongly by 3.68%, once surged to $5.85 per bushel, the highest since 2013; soybeans and wheat May futures prices have also risen sharply. More worryingly, if the USDA forecast is accurate, new supplies of grains for the next season will not be enough to make up for stock depletion. The department said that as of March 1, soybean stocks had fallen to a five-year low, and corn stocks were reduced to a seven-year low. The authorities reported that farmers are cautious about expanding planting due to reduced demand over the past few years and frequent extreme weather events.
At the same time, the market fears that demand in the Chinese market exceeds the amount planted in the United States. China purchased a large amount of soybeans from the United States last year and is expected to remain strong this year. And Brazil and Argentina are cutting soybean production, Brazil even limit the export of soybean meal, it is clear that the global feed will rise in price, then meat, vegetable oil, etc. will rise, which is a chain of linkage.
In the past, most of the protagonists leading inflation is the price of oil, today it is “chip”! As an essential place for soldiers, semiconductor supply shortage since the past half year, a number of chip industry chain manufacturers frequently rumored to increase prices, the cost will be passed on to downstream customers, the final material by the consumer “to pay”. Due to the widespread use of chips, electronic products and even automotive manufacturing industry will be used, so the chip price increase is expected to set off a new round of widespread electronic product price increases, the potential to push up inflation.
TSMC, the world’s largest semiconductor foundry, is rumored to be planning to cancel orders to customers at the end of this year, meaning that orders from next year to increase prices by several percentage points, the reason is the cost increase. China’s Semiconductor Manufacturing International also announced a price increase across the board. As a result of tight supply, chips and core raw materials rose, has been on the line of the order to maintain the original price, has placed orders and not on the line of the order will be implemented at the new price. Before the chip shortage, the semiconductor foundry industry had a price cut to grab the customer war and the offer will be low, profits are quite thin, and then see the capacity exceeds demand before they have increased prices. In the second half of the year, cell phones and other electronic products, as well as automobiles, etc. will likely usher in a new round of price increases.
Although inflation has begun to rise rapidly in countries around the world, and even some emerging market countries have taken action to raise interest rates, but the Federal Reserve is still trying to deny inflation. Both the Fed chairman and its members, as well as the U.S. Treasury Secretary, believe that the $1.9 trillion stimulus package and the $2.35 trillion grand infrastructure plan will not bring big inflation to the U.S. and that inflation represents a strong recovery of the U.S. economy and that the Fed can tolerate inflation of 3% or less. Here, we really don’t understand why they don’t think inflation represents a monetary overshoot. What if inflation exceeds 3% this year? Will they raise interest rates? This reminds me of the performance of the Fed and Treasury in the movie “The Big Short”, where the mortgage junk bond defaults kept rising and were basically about to blow up, but the Fed was still trying hard to cover it up, with the end result of taking taxpayer money and paying for these insatiable investment bankers. Now it seems that history is about to repeat itself.
Of course, such a cover-up is not only the Fed and the Treasury Department, but also Goldman Sachs and some other big investment banks that continue to sing the long shipments, as well as some prominent scholars in the U.S. private sector.
At the 2021 China Development Forum, Columbia University professor and Nobel laureate in economics Joseph Stiglitz said, “Don’t worry too much about inflation. He said, first of all, we have a lot of underutilized capacity, a lot of underutilized capacity in the world, and we can do a lot of things, for example, we can raise interest rates, and the way we monitor inflation today is much better than it was five or ten years ago, because we have data, we can get it immediately from the Internet, we don’t need to wait for weeks like before, we have really good forecasting way that we can find out if there’s inflation happening even before the data comes out from the Bureau of Labor Statistics.”
That’s a very informative quote from him. Of course, it makes sense to say that interest rate hikes deal with inflation, but to say that we don’t worry about inflation because we have good monitoring tools, that inflation has to wait for the data from the U.S. Bureau of Statistics, and some other statements are just plain self-defeating.
Let’s look at the standard definition of inflation in traditional economics: inflation is a monetary phenomenon that implies an increase in the overall price level. The price level is primarily the weighted average price of goods and services in an economy. In practice, we measure the overall price level with the help of price indices, i.e. the average prices of goods and services.
It can be said that this professor was just talking about the definition of inflation by the book, and he never realized that inflation was bound to happen when the Biden administration decided to implement the $1.9 trillion fiscal stimulus. The U.S. government came out with $1.9 trillion, which looks like welfare for the poor, but the U.S. federal government was already running a huge deficit and had no money, so where did this $1.9 trillion come from?
Obviously, the root and essence of inflation is from the government’s rootless water, no basis for the false credit expansion. This is logically very clear, as long as the root cause is clear and its essence is seen, there is no need for any statistics at all, as soon as the Biden administration’s $1.9 trillion stimulus was introduced, it was clear that inflation was bound to happen, and it would be a big inflation. Just as Goldman Sachs predicted, many of us will see economic phenomena in May that we have never seen in our lives.
Many people only know that inflation is bad, that things are expensive and that the money in their hands is getting gross. What they fail to see is that behind inflation, the gap between rich and poor is bound to widen, distorting the production structure and thus bringing about an economic crisis.
Inflation will bring the most obvious two layers of damage, a matter of rich and poor tear, a matter of class defense. For ordinary people, after inflation, the purchasing power of your currency becomes weaker, the same price can not buy the same portion of the previous. But for rich investors, instead, the cost of borrowing money is lower.
This divergence brings the first layer of future inflationary damage, which is to make the already unbridgeable gap between the rich and the poor continue to widen, with the upper and lower ends of the social class getting further and further apart, with the poor getting poorer and the rich getting richer.
Some people may never understand the impact of inflation on the poor and the rich, so let me briefly explain here.
Inflation is an invisible and crude form of wealth transfer. Inflation shifts social wealth to the wealthy class. Because the rich generally invest in debt and use leverage, combined with cheap money, money generates money faster; that is, the rich and large corporations are able to borrow cheap money to reinvest and convert cash into production or fixed assets.
So, can the poor use leverage too? No, because there is a threshold, a certain financial base and collateral. The middle class can take out a loan to buy a house, which is the only place to use leverage, and otherwise it seems unlikely to get a low-interest loan from a bank. The poor, on the other hand, are used to saving and are risk averse.
During inflation, the general inflation rate is higher than the bank’s deposit rate, which means that by keeping your money in the bank, you are actually getting a negative interest rate, and the purchasing power of the money you take out is getting lower and lower, and simply cannot beat inflation. This results in debtors benefiting and savers suffering.
That’s why the working class has the deepest anxiety about inflation. The rich tend to be floating income earners, while the working class is mainly fixed income earners; when inflation rises, it is the same as the government levying an inflation tax on the whole society; high inflation is often low interest rates, the rich assets expand quickly, while the working class only bank deposits, and have to prepare a little money for medical care and retirement. This is the root of the economics of the inflationary model of saving money for the poor getting poorer, and loans for the rich getting richer.
The second layer of inflationary damage is that it’s harder to stay in the class you’re in, and this is mainly for middle-class families.
For example, if you switched your mortgage rate this year, from fixed to variable, you made a choice based on low interest rates for the long term future. This is certainly the right thing to do, but there is also a risk that rising inflation will push up nominal interest rates and your future repayments may instead be going up. I guess this time, many people will fall into the mortgage rate trap. China’s LPR rates are starting to rise is the starting point.
So overall, no matter how to cover up again, inflationary false credit expansion, the logic of quenching thirst will not change, the essence of robbing the poor to help the rich will not change, this is the current global major central banks uncontrolled indiscriminate printing of money to release water the evil consequences. This time the big release is a continuation of the big release in 2008, once inflation soars or out of control, tightening the currency to burst the bubble is also inevitable. When the time may be a chicken feather. And this time, it is likely to be more spectacular than 1929 and 2008.
Let’s wait and see!
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