Thursday, 7 November 2013

Deliberately causing inflation

Yes, most governments actually want inflation. I only recently found this, a 2% target is planned, and today the Eurozone dropped their interest rates even though there is 0.7% inflation already, as they wanted even more. Extending from and looking at the other side of the coin from my low interest rates entry, this is the theft of a percentage of our money redirected to governments, banks and retailers. I am not an economist but know enough of the basics to explain the error of their ways:

Having established and confirmed low interest rates cause a loss in around 3/4 of the population who are overall savers or pensioners (which are both based on the interest rate), inflation is the inevitable result as money moves from cash deposits to commodities. Unless wages follow, where you end up exactly where you were anyway, everyone else loses as a result of inflation. All of it. So why would anyone actually want to inflict inflation on an entire country as a government policy?

The reasons for low interest rates mean inflation is a consequence, and of course the same people who borrow at base rate (banks and governments) benefit from low interest rates, as do all commodity speculators. This takes money from everyone else who lose as much as the minority gain. Commodity rises mean higher prices on average for everything, ie inflation. Who benefits from that? Retailers who sell more of a product that they buy, whether shops, banks, commodity brokers or anyone else who buys low and sells at a markup, will all make a profit from inflation as long as their workers aren't paid the same amount more to compensate, which in effect leads to hyperinflation which is at least as bad.

Now, without wanting to send anyone running for the hills, if a man has a small winkle he can't make it bigger naturally (despite what the spam emails tell you), so has what could be described as a fixed asset. How can he make it appear his equipment is actually larger than it is without changing a thing? He'd have to find a woman who was smaller down below than average so relatively it seemed bigger. This works with short men and ugly friends as well, just find a shorter woman or even worse looking one and you will look taller or better despite nothing having changed. You get the formula. Causing inflation (market manipulation, which is a socialist/fascist act) does this to debts. If you inflate away a debt then if you pay £100 a month for ten years, while the prices and wages rise, the £100 is a smaller percentage of your overall income each year when inflated away so it seems you are paying less, which at the time you are, BUT:

In the end you end up paying the rest when you replace whatever it was which has worn out or become too large or small for you, from a car to a house. All you've done is delay the result, as when you buy the replacement, instead of it costing around the same as it did ten years ago it will have risen the same amount roughly as everything else, and so will the entire economy. So in the long term you pay, and until then you still do as even though while your small section of expenses is going down relative to its value, so is everything else you are buying! Therefore even though that £100 a week is worth a little less for the period, everything else is going up literally, so what you save on that debt is being spent right now on everything you are buying.

Bottom line, by creating inflation your government is screwing you, and in the wrong hole. Sideways. With a pineapple.


  1. Being retired I am on a series of pensions. Luckily these are index linked so I just about keep level with inflation on this score. As regards my savings though the last 5 years plus has seen a dramatic erosion in my ability to 'earn' a reasonable level of return. So I'm being 'screwed' to use your terminology. However if the Bank of England were to move interest rates up....and they have to at some children and the vast majority of people on mortgages will find themselves in real trouble!!!! Is there a way out of this dilemma? I think not......

    1. I covered the general consequences of raising the rates in an earlier entry, but the first rule is if around 70% of the population loses from low interest rates of course you still have 30% of potential losers. But if that alone was the case surely it was better to look after the majority?

      Secondly everyone taking out a mortgage is supposed to ensure when they buy they are within the range to cover all possible rates, and something in the old days would not have been allowed to happen by the brokers. So although higher rates will raise outgoings everyone ought to have been prepared for it, people who spent more than 4 times their income, often over double that, can hardly complain when the inevitable happens eventually as the table they should be shown (was that only in the good old days?) of monthly outgoings for the entire range and if careful should be able to cope with the highest if it happens.

      So really no one saving has a choice with fixed rate safe investments as the market is limited, while everyone buying a property can choose their maximum price as there are very few unknown variables when doing so, so really need to take personal responsibility for their decisions. It really isn't fair to penalise the majority long term who couldn't choose what happened to their income, a third or a quarter of what it should be, for a minority who were in full control of their original situation.