Incipit
Writing about inflation and Witchdoctor is not an expert on the subject, stagflation especially,but who, out there, charlatan economists included, is?
But WD lived under a socialist regime 30- 40% yearly inflation and knows how it looks like, being a salary man, a self employed or a consumer.
It is a nightmare of hoarding hard currency,black market, exchanging worthless Dinars in advance and calculating the undecidable prices in advance, and so building up more inflation….
So, this is a sketch and it is from a different angle than the usual blah blah.
Lets start with this:
It is from the oftwominds blog, Charles Hugh Smith. Witchdoctor always cites fonts, why others do not do it, it is the reason why the progressive “camp” always loses…
This what oftwominds wrote WD knew already, and in short, you too.
Charles Hugh Smith nails it when concluding that price is set on the margins. So, in a village of 100 houses, the 5 on sale set the price for 95 remaining, not on sale houses.
THE PRICE IS SET ON THE MARGIN. That is it. With 5 houses one can set a market price for the whole 100 houses.
Hmm, do you smell a very likely stench of rigging the prices, if…
Now, Slovenia is a mouse dropping and everything is observed in a much nearer lens that ,for example, the USA.
So, when Slovenia went from a sort of market socialism to the current neoliberal model, a guy named Franz just took over the company named “JUNK. INC” and by having borrowed from his pal Janez, a former state owned bank director, all the money to buy the “Junk.inc”, giving as a collateral the yet to be , not existing company at the time of the free credit, and to list it on the new born Dreck Street stock exchange. The shares were listed at 100 junk euros.
The trading was slow, so he called his other pal, Boris and said to him: “why do we not organize a chain gang of some pals, your pals like Ivan, Bruno,Miha, Nikolaj and you start buying/selling my shares,slowly rising the market price 10%, 20 %, 40% and make a hype out of this start up”Junk.Inc”and lure the idiots to buy it too?
If this reminds someone how TESLA started to build it stock price, while its cars were exploding with faulty batteries or running amok, and when with a production of a few thousand Tesla surpassed General Motors market price, it is not WD to deny it. By the way, Elon Musk has met a few days ago the Turkish “president” Erdogan and they were discussing how the pyramids were built by Aliens and this is,, ha, not a joke, they really did it. The strawmen.
SO, the chain gang Franz, Boris, Miha,Ivan and Bruno started buying a small number of shares in a chain of buy /sell and in a few months the shares of“Junk.Inc” went up 50% So by buying a limited number of shares, the., price was set on the margin and the whole lot of shares got a new 150% rise. They , the chain gang, made a nice profit, their portfolio assets went up and they could borrow, repay the borrowed and get even more money out from the bank, having this huge assets as a clean collateral. It was all legal, unless somebody intercepted the chain gang discussion in a small bar in Dolnja Kompota where they met for a meal of gulash and a lot of bottles. But that is/ was highly unlikely.
That was money creation, yes. A bank created loads of Fiat money, and the bubble inflated. It was real money as it is yours 4 euros an hour for pizza delivery.
It was not inflationist, since it was only for the few new rich.
The same applies for the current quantitative easing. It is for the few.
The price of goods remained the same and the demand for goods, the mass consumer goods was the same, maybe a few more Ferrarris were sold, but this can not be a price push.
The overall purchase power was even falling so it was not that too much demand was chasing too few goods, which makes the scarcity phenomena and the price push/inflation.
But, if you do this trick for energy, you have it. That is how Putin pushed the gas for 100% up. Take it or leave it, but, you can not not buy it.
If we look at the Trading economics chart, the price of oil has , in last 10 years even dropped from 110 Dollars to around 80 today.When it was 110, no inflation was looming as it is now.
But there was the 2020, the Covid slump, or better, disaster.
Now, who, Witchdoctor included, has lowered the price in 2020 according to cheaper energy? Nobody or just for a little laugh.
So, we have a post recession or almost recession, forget the current GDP growth, as it is not covering the 2020 free fall and nobody was lowering the prices in accordance. We have all built prices up from the oil going apparently 60% up from 2020 but remaining the same level as in 2018!
Some did it because they were price squeezed already and found a room to breathe, some just for pure profit.
Do you remember that Blacrock, Vanguard and Street inc control over 80% of world stock market?
Have you read above- price setting on the margin?
Have you thought that paper gold , paper oil and all paper derivatives apparently equal to real gold and oil are 40 times more than the existing real oil and gold and cobalt and wheat and all etc etc etc?
4% inflation and 6% GDP growth if not discounted from the GDP, make GDP growth only 2%, see investopedia.
BUT, even if discounted, 4% inflation is only the average overall stat basket set inflation discount, which for you and me means nothing, as our energy bill went up 40%, our pasta 35% and so for the bread and oil and etc….
SO, we, the people, start to save and, what the f… , with the rising inflation and our not buying the not necessary, the next recession comes.
We have to pay the 30% more of the basic stuff rise and cut the other crap.So, for a household, the 4% inflation is a dream and has no impact, the impact is 30%. The purchase power goes down for 30%, or depends how much you earn , but the mass average is absolutely about 15% purchase power down. That means that the charlatan economists do bad macro, only good for Ferraries..
And we also hoard money aside, for the fear of even more price hikes, which is another form of saving which slows the money velocity and puff, WHATEVER MORE YOU HAVE EARNED IN 2020, they have taken it away.
What about wheat and cereals?
Now, here a story comes in:
Some years ago.. On a lovely island, while free diving and making underwater photography Witchlady and Witchdoctor met a very nice and clever farming wheat family from Canada enjoying their hard earned exotic holiday, after many years..
The story is, that when the harvest comes the prices fall. All farmers in the same week flood the market, since it is the harvest time. They are there at the mercy, blackmailed by monopoly buyers.The farmers are obliged to sell at the lowest seasonal price, since they HAVE NO STORAGE FOR WAITING a few months for the price hike, which comes (the price hike) always after the harvest, when the very few WORLD wheat corporations trading companies usually rise the wheat price, SINCE THEY HAVE THE ONLY MONOPOLY OF STORAGE.
So, have you read in WD post, a post on storage solutions? No, ok, good, pay the price.
If one looks a t the cereals wheat graph, the price hike is very likely correlated with the financial meltdown around 2011, so,the Oligarchy switched and shifted speculations on this commodity, as they are doing now.
The funny thing of cereals 30-40% price hike this year is, that this year was one of the best harvests world wide!
See “Nigrizia” a journal of Catholic Missionaries:
“L’indice Fao dei prezzi alimentari (Ffpi) ha registrato una media di 133,2 punti nell’ottobre scorso, segnando un aumento di 3,9 punti (3%) da settembre e 31,8 punti (31,3%) da ottobre 2020. Dopo essere cresciuto per tre mesi consecutivi, a ottobre questo indice si è attestato al suo livello più alto dal luglio 2011. Rispetto allo scorso anno, secondo la Fao, si prevede che la produzione cerealicola mondiale per il 2021 aumenterà e raggiungerà un nuovo livello record, di circa 2.793 milioni di tonnellate.”
“The FAO food price index (Ffpi) recorded an average of 133.2 points last October, marking an increase of 3.9 points (3%) from September and 31.8 points (31.3%) from October 2020. After growing for three consecutive months, in October this index stood at its highest level since July 2011. Compared to last year, according to the FAO, world cereal production is expected to increase by 2021 and reach a new record level of approximately 2.793 million tons.
So Witchdoctor asserts that the monopoly of all kinds and the speculative futures stock options,the financialization of all, the geopolitics,the WRONG allocation of free money for the rich Oligarchy,this boundary factors build up the price, together, in a minor way, with all the companies which sized the opportunity to avoid the squeeze on them in the decades of lowering price chain gang game.
The conclusion is that this price push is there to stay. Next, the resulting saving of the private household sector is making the new
Recession. IN the EU, the return to the , even if milder fiscal compact rules, is making a new austerity. And there is Omicron and whatever new Greek letter you need.
This Fossil Energy price hike happened even before the green energy transition and one can freely assume that it was a strike back of the fossil Oligarchy, before it starts to lose positions in the market and so avoid the looming default because of the clean energy competition, or, a slow oblivion..We are in the middle of this market repositioning of corporations.
Recession with inflation? Regardless of the energy shock, one thing is certain: The debt driven economy OLIGARCHY made it. They have no other option to save their system as it is, with again and again the same economic policy.QE for the rich is the proof, inflating the bubble…
This inflation is not because of the high demand, or,only a fraction of inflation is because of the disruption of supply chains.
The govt taxes on energy remained high in the same %, so they contributed to the price push.
The Energy giants have built up the price hike on an existing price,which already incorporated the SAME ENERGY PRICE, see years 2017, 18 and the whole past decade. See Trading economics graphs on commodities.
The Cure?
Fast as possible investment in clean energy, public storage facilities…
Energy saving!
Cut the demographic curve asap, with income distribution and free education and free contraception.The same as the free vaccines…
If anyone has better ideas, come forward. If, not, eat the pudding of the Oligarchy cleverly rigged House of Cards.At your expenses, in order to ban any thought of progress. Pushing us Back on tracks by any means.
Witchdoctor
On debt free money.