Some notions of inflation, currency and finance ... (2 / 3)
Keywords: money, cost, Friedman, Keynes, chicago boys, monetary, Central Bank, ECB interest rates
1st point: Fight against inflation? Yes but which one?
Have you ever wondered how the Central Bank or our governments interpreted and measured "inflation"?
If inflation is normally defined as a lasting rise in the general level of all prices (i.e. prices of everything that is traded - bought and sold - in an economy), in the In fact, the inflation figures reported repeatedly in the media actually correspond to the "rise in consumer prices". This is how 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 the calculations.
Think about it well: a consumer good, by definition, loses its value over time (you will probably get it cheaper in a year than when it was bought), while an investment is by definition (or by convention?) supposed to correspond to the reverse. But why is that? I will answer with a joke: because for some to be rich, it is essential that others are less rich, even poorer (remember: by definition, wealth is relative).
Those who invest will be (in a system that no longer euthanizes rentiers) richer than those who only consume! This was to be demonstrated.
You do not understand why property prices are soaring and that 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! However 55% of French people are "owners" of their accommodation (in fact, often tenants of their banker who loaned them the money!). Suddenly, and quietly, the share "Housing, water, gas, electricity" is reduced to the congruent portion in the calculation of this pseudo inflation.
Do you want to know how high it is taken into account? The answer is on the INSEE website, click here
Yes, if you happened to spend on your accommodation, water, gas and electricity, all that combined, more than 13,4% of your total expenditure, then ... you should start listening with a critical ear inflation figures given at 20 o'clock news. And above all, do not draw too definitive conclusions about the extent of your last increase!
In the July 2879 issue 2005 of the very serious review Problèmes économiques, an article originally published in The Economist was soberly entitled "The measurement of inflation remains controversial". Controversial is a weak word! We learned that a study had been carried out in the United States by an economist from the bank HSBC, assigning to real estate a weighting of 30% of the global consumer price index (to compare with our meager 13,4 , 5,5%). As a result, inflation jumped to more than XNUMX% a year, more than ... twice the official level of inflation for crowds. A very slight difference! Of course, I let imagine what the inflation figure would be if we also included the price of all financial assets, in particular that of stocks and products of the financial sphere ...
Because this restrictive interpretation of Inflation (with a capital I), which excludes all that is investment (or supposed to be such), is not without consequences. Excluding real estate prices, but also all prices of financial assets (stocks, 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 carrying the current financial capitalism… In other words: it is (almost) anything!
What is also recalled in the article in Economic Problems cited above:
“The idea that central banks should follow the evolution of asset prices does not date from today. In a book entitled "The Purchasing Power of Money", the American economist Irving Fischer argued in ... 1911 that monetary policy makers should adopt a price index based on a large basket of goods and services which would include also financial values and real estate ”.
Thus, 95 years after 1911, the question is timidly raised, above all, especially not to address it, because of such an assumption, modern capitalism still does not want it, 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 dares not say its name.
As the article then specifies, the idea of establishing such a price index would implicitly presuppose on the part of a Central Bank (genuinely independent, including financial markets and "investor" circles) that the rise in prices of these assets, by creating inflation, could be "detrimental". However, this inflation does not seem to bother too many, even those who claim to be independent of the financial markets. But are they really, culturally and personally? The supposed independence of financial audit firms, such as Arthur Andersen, did not resist long the cronyism and cross-interests, among others in the ENRON affair…
Yes, but no ... Because there is inflation and inflation, my dear sir. Whether real estate climbs to the sky or Jean-Pierre Gaillard chokes on joy because the CAC 40 climbed 25% in 2005, this is not inflation! Well, not bad, not that one, it's good, my good sir. The one who does not euthanize the annuitants what, and for good reason: this one creates rent!
The bad is the one seen by the lower classes, which makes them growl and demand wage increases to maintain their purchasing power. This one is bad, we tell you. Do not insist, it is so, and it is understandable in the end…
2nd 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.
There are decidedly very strange things in fields as rigorous and supposed as scientific as economic and monetary policies. Take the example of the ECB. Officially launched in 1998, it set itself the objective (in addition to controlling inflation under 2%, under the conditions of measurement that we know) of a programmed and fixed evolution of the money supply, that is to say -to say the amount of money in circulation in the euro zone, in accordance with the precepts of Milton Friedman: to increase the money supply by a constant and predictable value, equal to the target inflation added to the target growth. Thus was defined the objective of increasing this money supply (called M3) by around 4,5% per year (2% inflation + 2% growth + 0,5% corrective term).
In 2005, it took me to go take a look (of course, you have to want to, because all this is neither very publicized nor very understandable at first, it is true) on the data in the matter. And guess what we discover: in 2005, money supply has grown in Europe by almost 8%.
Isolated case will you say? Nay. Because since its launch, never a year, I mean never a year, the ECB has not met its target of 4,5%! Always above, and not just a little.
Result: compared to the theoretical progression targeted in 1998, it is approximately 20% of “excess” euros that were created and put into circulation, that is to say nearly 1000 billion euros out of a total money supply of about 6000 billion.