by Ramin Mazaheri for The Saker Blog
The West’s central banks – so uniformly promoting the neoliberal version of capitalism, so willing to subvert democratic votes and with such an atrocious track record – are obsessed with inflation; for the European Central Bank it is the only job they are officially tasked with.
Personally, given these realities…. I think inflation must be good!
I’m not being willfully contrarian because the reality is never admitted in the West: inflation is good for some societal sectors and bad for others.
High-finance must know that inflation is not the total scourge we are told it is: if they think inflation is so important, then why haven’t they lost confidence in the ECB for years of failing to achieve its only mandate – to hit inflation targets they set?
If it is indeed correct and useful to subvert every economic policy to the fight against high inflation – and this is indeed the Western reality -then why then has the West had both low inflation and low economic growth?
This article refuses to take capitalist ideology as a given, and it holds their feet to the fire for their terrible, unequal, inferior-to-socialist-central-planning results.
When can we finally forget about poor Germany in the 1930s and all the “trauma” inflation caused them? I can’t count the number of times in the past decade I have read of this era as a so-called “justification” for Germany’s heartless, ineffective and self-serving pro-austerity policies. Iran has inflation problems and yet I never hear anyone, including Iranians, say that we are “traumatised” or “scarred” by inflation… sheesh, grow a backbone.
When it comes to the Western Mainstream Media inflation is usually presented as a problem of the past or in socialist-inspired economies like Iran, Venezuela and Zimbabwe… and yet the number one complaint of French people in the past decade has always been what is euphemistically called “purchasing power”, i.e. inflation. Inflation – the inability to buy as much as you used to with the same amount of money and/or hours worked – is obviously a huge concern here, despite there being “low inflation” officially.
Clearly, a reboot on viewing inflation is needed in the West….
The unsaid reality of inflation: Good for the many, bad for the (rich) few
Before starting, the way the West judges inflation is fundamentally false and renders most discussions absurd.
They do not incorporate housing costs into inflation rates, even though housing is everyone’s single biggest cost. Food and energy, which are huge household costs, are not included because they are allegedly “too volatile”! In the US medical insurance costs are not even included either despite the huge weight they play in US household budgets. Who is devising these gauges and how can we politely tell them not to come back to work anymore?
It should be clear: capitalist economists have purposely devised instruments and measurements which are very little connected with the realities of everyday life.
It is also clear to everyone on an anecdotal level that that – to hell with the government statistics and however they fudge the numbers – nobody in 1980 would have imagined that a can of orange juice could ever cost 3.50 euros at a French highway rest stop in 2010. A time-travelling Frenchman from 1980 would have said: “Wow, we must have had rampant inflation!”
However, we will benefit from persisting in our discussion of inflation despite these obviously false terms….
The reality is that inflation is complicated, but not inexplicable. It is certainly not one-sided and yet it is painted as “bad” across the board by the mainstream media, and certainly the financial media and their high-finance audience, neither of whom will never admit that inflation is often good for the 99%, and positively disastrous for the 1% to whom your rent and interest payments flow.
Part of our reassessment starts with grasping how in the most-globalised economies of the West inflation is especially inextricable from currency strength. A strong currency is undoubtedly better for the average person, as they have more purchasing power when it comes to imports. The higher a nation’s involvement in globalisation the more imports there are.
For example, because oil is so important to the average household in the 21st century a strong dollar/euro/yen means imported oil costs them less. Given the proliferation of free trade agreements, a little thing called “food” is also now routinely shipped in from elsewhere. Furthermore, many Western nations have far less domestic manufacturing than they used to, and thus their consumers rely on imports here as well.
Oil, food, basic manufactured goods – these are all rather huge considerations for any public servant actually concerned with the public’s well-being!
When I moved to France the euro was quite strong – nearly 1.60 dollars to 1 euro – and it was terrible… until I started getting paid in euros – then I was Mr. Moneybags anytime I went home! So why did the Eurozone’s leaders allow the euro to drop, when it was obviously much better for average people like myself? In large part because that’s what Germany wanted – they are an export-driven economy, and a strong euro makes products exported by Eurozone corporations more expensive outside Euroland. This political imbalance of the Eurozone, combined with Quantitative Easing, has dropped the exchange rate all the way to 1.10 dollars to 1 euro. I am no longer Mr. Moneybags, indeed, and the Eurozone’s average person has similarly been economically weakened.
This personal (and pan-Eurozone) anecdote helps relate how a weak currency is better for three sectors of the economy:
Firstly, it lowers the foreign selling price for companies who export… which is not all companies, crucially. Even more emphatically, the majority of workers in the US, to give one Western example, do not even work in corporations, much less corporations which export. Therefore, policies which claim they are “pro-job” because they are pro-corporation is not accurate – what instead is accurate is to say that they are “pro-corporate jobs” which, again, is not all jobs. However, because corporations easily manipulate the West European bourgeois political structure, policy is made for their needs and not that of the average person, worker or community.
The second sector which benefits from a weak currency are bankers: a weak currency is good for them because they can get money and loans cheaper, and their debts are easier to repay. If you borrow money in dollars at 0.2% for 3 years – that is very cheap; however, if over three years your currency strength drops 10% relative to the dollar, the amount you have to pay back is more than just 0.2%. Given the proliferation of QE policies and the subsequent rampant proliferation of socially-useless investments – the stock market, luxury goods, luxury housing – it should be very clear why bankers do not want higher interest rates (which, by reducing quantity increases demand and thus causes a stronger currency): they want to keep borrowing cheaply.
There is a third sector of the economy which benefits, and perhaps the most parasitical. Unlike corporations and bankers they are not distant strangers but people whom we all touch personally in our regular lives
Landlords and debtors – those most empowered by low inflation
Look: If the price of a kilo of fruit went up to 1,000 euros tomorrow I’d be thrilled… because it means a kilo of fruit is roughly equivalent to one month of my rent in Paris.
And wouldn’t that be a load off my budget, my mind, my burden, etc.? Rent is my biggest concern, like most people.
Along with banks, the propertied class benefits immensely from low inflation. Anything which could cause higher prices – and thus higher wages to pay those prices – necessarily deflates the worth long-term rental contracts.
This positive effect of higher inflation would be least felt in places like the US, where landlords have all the rights and can (incredibly) raise the rent at a moment’s notice, but in places like France apartments have long-term contracts (usually three years) but there can only be one increase per year and it is capped by the government (usually around 2%). A spike in inflation would thus not affect my rent for at least one year, but maybe longer. However, inflation would hugely affect the enormous profits of the propertied class, whom we all hate and resent for taking 1/3rd of our pay checks in return for merely staying out of the elements in a humble abode.
Of course, such a point of view – that landlords are parasites off my sweat, wages and risk – is never heard in the West.
(I did effectively pass this on to my landlord recently and… our relationship has rather deteriorated, LOL. I could not care less – I asked for the first terribly minor, incredibly non-aesthetic repairs in 7 years and she acts like I asked to install a sauna, whirlpool and tennis court! Maximising profits are all that matter to her, and not the small fortune I have transferred to her bank account the past decade.)
Last month California capped annual rent hikes at 5%… but plus inflation. The propertied class in the US is merciless and controls all the political levers.
Inflation means higher prices, sure, but that is not an issue if wages rise as well. Economists rightly discuss both “price inflation” and “wage inflation”. One area where there has been no inflation for 40 years in the West is wages – this why we are all as shocked to pay 3.50 euros for a orange juice just as much as our imaginary French autoroute traveler would be.
So if the price of fruit reached 1,000 euros per kilo but I received a commensurate wage hike, even just one year of not-sky-high rent prices translates into huge savings for me.
Studies say 60% to even 80% of Americans live pay check to pay check – you may scoff at the notion of higher inflation paying off for those (of us) who live like that, but we have nothing to lose but our chains. This article addresses how the power of the propertied class can be reduced, and inflation can be one of those routes.
Indeed, the “propertied class” – people who own more than 1 home to rent to others – is the biggest class war. Forget “the 1%” – sure, they are bad, but the propertied class is really what separates the haves from the have-nots in the West. By cutting out the capitalists and their parasitical middlemen, socialist China has created a society where 90% of Chinese own their own homes. The insecurity caused by landlord usury has incredibly negative societal and personal consequences, and if it takes price inflation on everyday goods to end it – bring it on. I have an economic leg to stand on because in theory price inflation leads to wage inflation.
If a kilo of fruit cost 1,000 euros, then I really would be kicking myself for not having bought a 40 square meter apartment in Paris (at the mere average cost of 4-500,000 euros in a cheap part of town), because then I could have paid off my apartment’s sale price pretty quickly.
Thus, Western economists and journalists are quite biased where inflation is good – asset classes of the rich like stocks and real estate – and where inflation is bad – wages and prices on everyday goods. All of these types of inflation – just like currency strength – benefit some sectors and hurt others. Because in the West private corporations own the mass media, this reality is never said much less explained: Inflation is optional.
Western economists and journalists also adore another area of inflation, but in one area which they prefer to never discuss: debt. Being against Islamic notions of finance, compound debt is viewed by this class as a business victory and not a moral crime.
A rise in inflation also means a deflation in the cost of debt: the principal’s price is fixed, and the interest is at a fixed, contracted rate – thus debt is made cheaper by price inflation. With price inflation wages will rise, but debt will remain fixed, thus debt is paid off faster – this is not at all what debtors want to see happen.
Debt is owned by the 1%, the propertied class is roughly the next 10% – these are the groups for whom Western economic policy is targeted and for whom Western Mainstream Media financial coverage aims to protect and support. Inflation threatens the debt and financial instruments which they use to keep the other 89% in neo-serfdom.
Now that we have established who benefits from inflation and who doesn’t, we should grasp the most vital fact in 2019: low inflation allows G7 banks to print huge amounts of money.
Inflation allows the massive money-printing to take place
This 11-part series uses as its jumping-off point the 2018 book Collusion: How Central Bankers Rigged the World by Nomi Prins, a former Wall Street executive who saw the light and is now informing on the crimes of Western imperialism-capitalism. Prins gives a thorough and chronological account of central banker doings in key areas – Mexico, China, Brazil, Japan and Europe – ever since US banker crimes set off the Great Recession in 2007. The essence of her thesis is that the US orchestrated collusion among the central bankers of many of the G20 economies and the Eurozone in order to primarily save busted US banks, and then also to maintain the 1%-enriching policies of QE, ZIRP and no-strings attached bailouts.
“Here lay the crux of the central bank priorities. The central banks’ concerns and policies were mainly focused on price stability (or inflation), but with rates at zero and global growth slow everywhere, a rise in domestic inflation didn’t necessarily imply growth or better levels of employment (prices rise due to either scarcity or increased demand – increased demand can easily be manufactured by increased good jobs and increased wages (i.e. people can afford to pay more)). Using inflation as a goal post, then, was an implicit means for central bankers to align with hitting investors’ expectations and vice versa. In the absence of true inflation or growth, central bankers, especially in developed nations, could keep conjuring money, which flowed to banks and market speculators who borrowed it cheaply and in large quantities, because real inflation was so difficult to attain in a faltering economy.”
Prins clarifies, saving me the time, why prices on goods increasing is not necessarily a bad thing when they are commensurate with an increase in wages and in good job availability – it’s a sign of increasing demand, which creates more sales, production, profits, jobs, domestic spending, etc.
She correctly gets across the idea that low inflation is not always the good thing the Western Mainstream Media claims because it should also be associated with low economic growth when there is no wage inflation and also “good-job availability deflation” (this has been caused in Europe by austerity measures which take a right-wing rollback to the labor code), and this has been exactly the case in the Lost Decade of the Eurozone.
Higher inflation would certainly have been better than the last 10 years than the measures which were designed to somehow keep down inflation but also increase growth. These paradoxical measures obviously failed miserably for the average Eurozoner.
And she correctly asserts that keeping inflation down in the context of massive money printing – which should obviously decrease currency strength and increase inflation because there are more dollars/yen/euro than before in the market – especially benefits banking corporations who are the only beneficiaries of the massive money printing.
How Zero Interest Policies also hurt the 99% and not banking corporations
Prior to the Great Recession there was a simple way to stop the rising prices which central bankers are allegedly so very worried about – just increase interest rates. This gives more incentive to save, and it makes it harder to buy things which you must borrow in order to afford… thus prices fall due to decreased demand.
(The socialist way to stop rising prices is even simpler: to hell with the market and the producers – institute price controls. But that is not an option in the West. It is an option in Iran: they recently slapped a 40% tariff on chicken in order to keep more chicken in the country. Such a tariff is anathema to non-Trumpers in places like the US, but these are the types of moves Iran can endlessly use in order to make sure basic goods keep flowing to the People despite Western sanctions, and the People need meat.)
However, ZIRP has been instituted precisely because Western central bankers do not care at all about the 99% but care only about ensuring massively printed money flows towards banks and the 1% (which they have obviously kept for themselves and have not lent to the 99%).
Zero percent interest rates hurts the average saver, and that is perfectly obvious – why save at all? Why not spend your money instead on speculative investments, like the stock market?
In fact, zero percent interest rates achieve the fantastical trick of making time not worth anything. This is contrary to human history, human nature and certainly to long-term economic planning.
If Western central bank policy was oriented away from the 1% they would raise interest rates, which would reward savers and ultimately translate into a stronger currency, as the higher interest attracts more investors and thus fortifies the national economy. However, I related how stronger currency is bad for two, very rich, very limited sectors.
ZIRP also benefits corporations and bankers for the reason I listed: in the West European bourgeois/aristocratic system these two groups have greater access to taxpayer resources and government funding, and their lobbies are able to get enacted what benefits them. Banks and corporations can borrow for nothing and then charge you and me whatever they want for a loan with said money; banks and corporations can borrow for nothing and then buy their own stock and see a guaranteed price increase, thus a bigger yearly dividend check; banks and corporations can borrow for nothing and just wait until the next inevitable bust in capitalism, then buy cheap when the blood is in the streets; banks and corporations can flood the developing world with newly-printed money and wait until the next inevitable bust in capitalism to yoke them into compound debt servitude.
Because there is no demand – as wages have been effectively deflated, and as good jobs are both more scarce and more precarious – of course there has been no inflation… we didn’t need a central banker’s help with that! They were supposed to help that!
What’s more, ZIRP has helped provoke spells of deflation in Europe, which both reflects and causes economic hardship… unless you have access to QE money, of course.
In conclusion, to talk about actually encouraging inflation in the West leads to immediate extremism: this is why Western commentators immediately evoke Weimar Germany. It’s absurd to think that inflation in the right sectors – wages, prices and “good job availability” as opposed to debt and elite-owned asset classes – cannot be safely managed.
However, we must remember that Western neoliberalism teaches that, 1) the free market is essentially a wild beast about which we essentially know, can and should do nothing about, and 2) no one is less capable of effectuating positive change in the economy than the central government.
Given these beliefs – which are unfounded, faith-based beliefs and not facts – it is no wonder that the elite who control public discourse do not want anything which they cannot control… in order to maintain the debt-bondage status quo, of course. Managing inflation safely necessarily implies central planning, and despite the Great Recession and the looming Great Recession II (i.e., Great Depression II) Western culture abhors this idea… for some reason I can’t explain.
What QE and the lack of proper inflation have done is best put like this: instead of devaluing their currencies to pay for their banker crimes they have decided to devalue their economies, which is the subject of Part 6.
Here is the list of articles slated to be published soon, and I hope you will find them useful in your leftist struggle!
Part 1 – Western central bankers: they’re God, they trust – a 10-part series on the QE economy
Part 2 – How QE has radically changed the nature of the West’s financial system
Part 3 – QE paid for a foreign buying spree: developing countries hurt the most
Part 4 – Iran vs Mexico: ‘economic inflows’ versus ‘economic independence’
Part 5 – Understanding the West’s obsession with inflation
Part 6 – The new ‘beggar thy neighbor’: wars to devalue labor, not
Part 7 – Blaming China for the Great Recession… to avoid emulating China’s (socialist-inspired) success
Part 8 – 1941, 1981, 2017 or today – Europe’s mess is still Germany’s fault
Part 9 – Don’t forget the real root of Brexit: fear of Eurozone economic contagion
Part 10 – Bankocracies: the real Western governance model
Ramin Mazaheri is the chief correspondent in Paris for Press TV and has lived in France since 2009. He has been a daily newspaper reporter in the US, and has reported from Iran, Cuba, Egypt, Tunisia, South Korea and elsewhere. He is the author of the books I’ll Ruin Everything You Are: Ending Western Propaganda on Red China and the upcoming Socialism’s Ignored Success: Iranian Islamic Socialism. His work has appeared in various journals, magazines and websites, as well as on radio and television.