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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 point: 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 all that is traded - bought and sold in an economy), 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.

Think about it: a consumer good, by definition, loses value over time (you will probably get it cheaper in a year than when you bought it), whereas an investment is by definition (or by convention?) supposed to match the opposite. But why? I answer with a joke: because for some to be rich, it is essential that others are less rich, or even poorer (remember: by definition, wealth is relative).

Those who will invest will be (in a system that no longer eut the rentiers) richer than those who only consume! 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 housing (in fact, often tenants of their banker who lent them the money!). Suddenly, and softly, 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 INSEE website, click here

Oh yes, if you spent money on your home, water, gas and electricity, all of it combined, more than 13,4% of your total expenses, so ... you should start listening to the numbers of inflation given at the 20 hours. And above all, do not draw too definitive conclusions about the extent of your last increase!

In the July 2879 2005 issue of the very serious Economics Review, an article originally published in The Economist was soberly titled "The Measurement of 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 would be the inflation figure if we also included the price of all financial assets, especially that of stocks and products of the financial sphere ...

Because this restrictive interpretation of Inflation (with a big I), which excludes everything that is (or supposed to be) investment, is not without consequences. Excluding real estate prices, but also all prices of financial assets (equities, various investments, financial products, and ...) in a period when the financial sphere has become dominant is not a straw: it is a beam ! And obviously a beam carrier of the current financial capitalism ... In other words: it is (almost) anything!

What recalls besides the article of Economic Problems quoted above:

"The idea that central banks should follow the evolution of asset prices is not new today. In a book entitled "The Purchasing Power of Money", the 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, 95 years after 1911, we timidly emerge the question not especially, especially not to address it, because of such a supposition, modern capitalism still does not want any more than there is almost a century. The so-called fight against inflation biased by the current (deliberate) measure is a real scam that does not dare to say its name.

As the article goes on to say, the idea of ​​establishing such a price index would implicitly imply from a (truly independent) Central Bank, including financial markets and "investor" circles, that price of these assets, by creating inflation, could be "prejudicial". However, 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 audit 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 no ... Because there is inflation and inflation, my dear sir. That the real estate climbs to the sky or that Jean-Pierre Gaillard is choked of joy because the CAC 40 climbed of 25% in 2005, this is not inflation! Well, not bad, no, that's good, my good sir. The one who does not euthanize the rentiers what, and for good reason: this one creates rent!

The bad is the one seen by the low people, who makes him groan and demand salary increases to maintain its purchasing power. This one is bad, we tell you. Do not insist, that's the way it is, and that makes sense ...

Fifth point: control of the money supply: do not put too much money in the economy, because at all times and in all places inflation is of monetary origin.

It is decidedly strange things in fields as rigorous and supposedly as scientific as economic and monetary policies. Take the example of the ECB. Launched officially in 1998, it had set itself the goal (besides the control of inflation under 2%, under the measurement conditions that we know) a programmed and fixed evolution of the money supply, that is to say the amount of money in circulation in the euro zone, according to the precepts of Milton Friedman: to grow the money supply of a constant and predictable value, equal to the targeted inflation plus the targeted growth. Thus was defined the objective to grow this money supply (called M3) by about 4,5% per year (2% inflation + 2% growth + 0,5% corrective term).

In 2005, he took me to take a look (certainly, we must want it, because all this is not very publicized or very understandable at first, it is true) on the data in this area. And guess what we discover: in 2005, money supply has grown in Europe by almost 8%.

Isolated case will you tell me? Only nay. Because since its launch, never a year, I say never a year, the ECB has not met its goal of 4,5%! Always above, not just a little.

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

Read part 3

Learn more

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


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