Inflation – A Pox on all Our Houses

2

Inflation: It’s the government stupid

Inflation is the perpetual surprise to each new generation. Like the cycle of good times creating weak men so inflation is created by weak governments wanting to greedily please too many without the resources to do so. I will use the phrase ‘print money’ here but to be clear we do that instantly now via zeros on a screen.

Inflation is as old as time. The Chinese had the first paper money system and were also the first to discover that just printing more enabled the satisfaction of more projects for the emperor and the saving of the necks of the courtiers who thought telling the emperor no was bad for their health.

The Roman empire rose and fell and rose and fell again on the debasement of its coinage. Printing by slipping in a little more base metal and taking out a little more silver was a handy way of paying the bills for all those circuses that became so necessary when morals were non-existent and their soldiery was done by foreigners.

One of the most famous incidents in living memory was when US President Tricky Dick Nixon paid down the bills for the Vietnam War from the printing press, thereby breaking the terms of the post-World War 2 Bretton Woods agreement whereby the US would be the world’s currency but only if the world could cash in their US dollars for gold as insurance. The French government, who via their own Vietnam entanglement, worked out how Tricky Dick was balancing the ledgers sent a French warship into New York habour to claim back the gold entitlement of their dodgy US cash. After loading up the French warship with gold, a few days later Tricky Dick quickly cancelled Bretton Woods and kept on printing.

Is There Another Cause?

It is possible to get inflation without government printing, but despite all the earnest efforts of leftist press to tell us that capitalist masters are price gouging, this is very rare. Occasionally when monopolies are created via new technology (think owning a railroad or a patent on a medicine) prices can increase, but unless it is helped by government to lock this in it is usually shortlived. You can also have a war which tends to create shortages but again this is pretty shortlived.

The vast majority of inflation is directly caused by governments wanting to spend more money than they tax or can borrow, and that is what is happening now.

What are the Signs?

In the O’Reilly household, notice was taken of the startling amount of money being provided by that lying pants shitter Scomo to support the panicked oppression of millions of Australians by a bunch of bunyip brained opportunistic premiers and their corruptly appointed party mates shoved into State Health Departments. However, it was when a certain dementia addled, rapist rumoured, corrupt union backed President of the United States whispered that he was spending $1.2 trillion dollars, and giving a tax cut, that the O’Reilly household really started to take notice.

What Do We Have Here?

Inflation is a funny thing. While it is easy to take an engineering view of the economy, money in money out, goods in and goods out etc the reality is that its more like a camp fire. You can tend it to grow smaller or bigger or you can turn your back on it and find that its spark has leapt into the scrub and you are trying to fling the kids and dog into the four wheel drive and get the fuck out of there before you fry.

Unfortunately we are at the stage of weighing up whether its worth having a final scout for fido down by the creek or leaving him to take his chances.

The reason it’s like this is because inflation is caused not just by the simple amount of money versus the demand for available goods and services. It’s because the money we use has no value, it’s only our perception of its value.

If you find out, for example, that the supply of money is controlled by a lying pants shitter who is converting your country’s Christian conservative party into a leftist collective of beard boasting women with a predilection for grooming your children, then you lose a degree of confidence that the printing will stop. So naturally you ask for a decent wage increase that will allow you to pay for your grocery bills.

Our dear friends the bankers are not idle either. Interest is the price of money and inflation reduces the value of that interest, so they increase their interest to cover inflation plus whatever profit margin is necessary to allow them to continue to hit the slopes of Mt Blanc wearing the latest Rolex on their wrist.

Finally, for those outside our borders lending to our well dressed Australian bankers, they not surprisingly see a resource rich country headed by a pants shitter and a bunch of bearded paedophiles as probably not a place where good governance is valued. Accordingly they tick a few risk boxes on a spreadsheet and the cost of Australia borrowing money goes up and the likelihood of liens being put on assets as a first rather than a last resort becomes normal, ie you don’t pay and they are first in line to pick up your airports and docks for a song.

It’s a Stag Party!

In the 70’s this was called stagflation, in that the economy was tanking due to high wages, crippling interest and no one having enough money to buy stuff, at the same time inflation was going through the roof.

The government couldn’t print money because as people’s trust in government competency was at rock bottom inflation shot up. They couldn’t borrow money as the overseas interest rates were crippling. They couldn’t tax people as people didn’t have jobs. And unemployment, and therefore government benefits, were through the roof. And the share market crashed, boomed and crashed again as governments across the world couldn’t quite keep their hands off the print button.

We dragged our way out of this mire finally in the 90’s about 20+ years after Tricky Dick and his many followers around the world started printing money to pay debts. Along the way we had record unemployment, interest rates of 18%, a wasted generation of young people, share markets crashing and general unhappiness and fuckery.

We emerged in the late 90’s with very tight monetary control on the printing presses, dangerous debts to foreigners paid off, employment high due to what we made and focus on the government staying within its budget as a key indicator of responsibility. All good lessons from the 70’s and 80’s but of course easily forgotten almost immediately in the times post Howard.

Well – What Do I Do?

It might help if I dotpoint this bit as a summary:

  • Inflation will shoot up – Scomo has printed billions and neither side will stop until the population begs them to, so hold on to your hats. Expect your wage to go backwards every year by a minimum of 5% ie in 20 years time the wage you have now will be worth one third of what it is now.
  • Interest rates will follow – the variable rate will go to whatever the headline inflation is plus a minimum of 1.5-2%, adjusted quarterly to match each inflation release. So inflation is now 5.1% so variable interest will move to about 7%. In the short term this is likely to spike as banks go ahead of the inflation rate to keep up, so rates north of 10% are very possible.
  • The sharemarket (and therefore the value of your super) will tank.
  • Unemployment will rise.
  • A lot of foreigners are going to take over big chunks of your infrastructure and companies, especially those with a lot of debt or highly dependent on price sensitive overseas markets.
  • Overseas countries will increase tariffs to protect local jobs and industries.

From the point of view of the average citizen (and without getting into conversations about growing your own veggies or starting up communes in the country) what you can practically think about is:

  • Retire debt very damn fast – if you have shares sell them to retire the debt, the shares will tank and the debt will rise so this is a no brainer.
  • Lock in a fixed interest rate for at least a portion of your loans.
  • If you are working casual or on a contract think about a job in a large company or government that will have some more buffer to absorb shocks.
  • If you are optimistic and have some spare cash wait for the crash and pick up bargains, but concentrate on assets that have underlying values. Real estate and mining companies owning products that rise and fall with economic activity will be hit hard but will be pearlers if you can keep them and come up on the other side. I know it’s. shit but better you than some foreigner.

It seems a strange thing to end on but I am reminded of our pants shitting Prime Minister’s quote about repealing the appalling 18C vilification laws whereby people who were deemed to have offended someone could be legally hounded into silence. Morrison said:

“This issue doesn’t create one job, doesn’t open one business, doesn’t give anyone one extra hour (of work)”.

That statement is indicative of a government that does not care about the rights of individuals to live their lives without government harassment. It’s indicative of the ‘government can do whatever the fuck it likes’ to people socialism that is now championed by our conservative government. Everyone else (with a few notable and largely powerless exceptions) is to the left of this statement.

Inflation is a silent thief of our wealth that cowardly and oppressive governments indulge in when they want to take our money and give it to mates or the many defective beggars who wish to receive wealth from the productive few.

Don’t vote for governments who believe in the power of the group and want to disempower the individual, if they take your rights then taking your money, your economy, your assets and your children’s future is a small step away.

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