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Some concepts of inflation, currency and finance ... (2 / 3)

Read part 1

Keywords: money, cost, Friedman, Keynes, chicago boys, monetary, Central Bank, ECB interest rates

1er item: Fight against inflation? Yes but which one?

Have you ever been interested in knowing how the Central Bank or our governments interpreted "inflation" and measured it?

If inflation is normally defined as a sustained increase in the general level of all prices (that is, the prices of everything that is traded-buys and sells in an economy), in In fact, the inflation figures communicated in a loop in the media correspond in fact to the "rise in consumer prices". Thus all the prices of all the products exchanged are not taken into account. The prices of what is aptly called "investment" are thus carefully excluded from calculations.

Reflect well there: a consumer, by definition, lose value over time (you do resell probably cheaper in a year at the time of purchase), while investment is by definition (or convention?) intended to match the reverse. But why? I reply with a joke: because for some are rich, they are essential while others are less rich or poor (Remember: by definition, wealth is relative).

Those attending will invest (in a system that no longer euthanasia annuitants) richer than those who only eat! This was to be demonstrated.

You do not understand why real estate prices are blazing and official inflation does not exceed the famous 2%? Look no further: the purchase price of housing (new or old) is not taken into account in inflation! Normal, answer the economists, we consider that it is investment! But 55% of French people are "owners" of their home (in fact, often renters of their banker who lent them the money!). Suddenly, and quietly, the share "Housing, water, gas, electricity" is reduced to the correct portion in the calculation of this pseudo inflation.

You want to know how high it is taken into account? The answer is on the site of INSEE, click here

Yes, if you happened to spend for your home, your water, your gas and your electricity, all together, more than 13,4% of your total expenses, then ... you should start listening critically figures ear given the inflation JT 20 hours. And especially not to draw too firm conclusions about the extent of your last raise!

In the July 2879 2005 issue of the very serious Economic Problems magazine, an article originally published in The Economist was soberly titled "Measuring Inflation Remains Controversial". Controversial is a weak word! We learned that a study was conducted in the United States by an economist at HSBC Bank, assigning real estate a weighting of 30% of the overall consumer price index (compare with our meager 13,4 %). As a result, inflation jumped to more than 5,5% per year, more than twice the official inflation level for crowds. A very slight difference! Of course, I can imagine what the inflation figure would be if we included in it the price of all the financial assets, in particular that of the shares and products of the financial sphere ...

For this restrictive interpretation of inflation (with a capital I), which excludes all that investment (or supposed), is not without consequences. Exclude property prices but also prices of financial assets (stocks, various investments, financial products, and ...) at a time when the financial sphere became dominant is not a flaw: it is a beam ! And obviously a support beam of the current financial capitalism ... In other words: it's (almost) anything!

What also recalls Article of economic problems cited above:

"The idea that central banks should follow the evolution of asset prices is not new. In a book titled "The Buying Power of Money," US economist Irving Fischer argued in ... 1911 that monetary policy makers should stop a price index based on a broad basket of goods and services that would include also financials and real estate ".

Thus, after years 95 1911, we timidly spring the question to do most of all not to approach because of such a supposition, modern capitalism still do not want any more that there is almost a century. The so-called fight against inflation biased by the current measure (deliberate) is a real scam that dare not speak its name.

As the article goes on to say, the idea of ​​establishing such a price index implicitly implies that a central bank (which is truly independent, including financial markets and "investor" circles) of these assets, by creating inflation, could be "detrimental". But this inflation does not seem to bother some, even those who self-proclaim themselves independent of the financial markets. But are they really, culturally and personally? The supposed independence of the financial auditing firms, like Arthur Andersen, did not resist for a long time the copinings and the crossed interests, inter alia in the ENRON case ...

Yes, but not ... Because there is inflation and inflation, my dear sir. That real estate rises to heaven or that Jean-Pierre Gaillard choked with joy because the CAC 40 25% climbed in 2005, this is not inflation! Well, not bad, not that one, this is good, my good sir. One that does not euthanasia annuitants what, and for good reason: this one creates the rent!

The bad is that which sees the common people, who did the grunt and demand wage increases to maintain purchasing power. This one is bad, you are told. Do not insist, it is so, and it finally understands ...

2ieme point control of the money supply: Do not put too much money into the economy, as in all times and in all places, inflation is a monetary origin.

It is definitely very strange things in areas as rigorous and as scientists supposed that the economic and monetary policies. Take for example the ECB. Officially launched in 1998, she had set a goal (besides controlling inflation under 2%, in conditions as we know) a programmed evolution and sets the money supply, that is, -dire the amount of money in circulation in the eurozone, according to the precepts of Milton Friedman: growing money supply of a constant and predictable value, equal to the inflation target plus the growth target. Thus was set the objective of growing the money supply (called M3) of about 4,5% annually (2 2% inflation +% growth 0,5% + correction term).

In 2005, it took me to go take a look (certainly he must want because all this is not very publicized nor understandable at first, it is true) on the data in the field. And guess what we discovered: in 2005, the money supply has grown in Europe almost 8%.

isolated case you say? Nay. Because since its launch, never a year I say never well one year, the ECB has held its target of 4,5%! Always on top, and not a little.

Result: Compared to the target theoretical growth in 1998, about 20% of "surplus" euros were created and put into circulation, ie close to 1000 billion euros out of a total money supply of about 6000 billion.

Read part 3

More details

- The author's website
- What the consumer price index?
- The European Central Bank website


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