Stupid, it's just Monetary Inflation

Pricing increases aren't just due to supply shortages or price gouging by American and European corporations.

Astonishingly creative explanations are being offered by politicians, news media, and others to explain why prices have risen. Other than the pandemic, some are blaming Russia, while others are accusing price gouging by corporate America (or corporate Europe or corporate whatever). Russian gas corporation Gazprom may have deliberately depleted Europe's stockpiles of gas ahead of the invasion of Ukraine in order to make European politicians hesitant about supporting the Ukrainians, according to certain conspiracy theories. Since Gazprom triggered the issue, which was subsequently accelerated by China's soaring demand, other prices rose as a result. While these and other variables have played a role, they do not constitute the fundamental driver of the current rate of price inflation.

Even before Putin's actions and after many of the supply bottlenecks linked to the pandemic were rectified, consumers were feeling the pinch of price increases. There has not been a single month since March 2022 that the Consumer Price Index has not exceeded the Federal Reserve's inflation objective of 2 percent—all the way to the current 8.5 percent rate.

Since June 2021, inflation in Europe has also been higher above the ECB's objective. That's not even taking into account how these averages hide price increases of individual items, in many cases more than double the rate of inflation, and how the various components are weighted in a way that doesn't reflect the spending priorities of millions of households. For example, in the United States, housing rents have increased by 17% and used automobiles have increased by 35% in the last year.

The disruptions in supply may really be a demand issue, according to several markets. Containership rates from Shanghai to the West, for example, have dropped!

Oil and gas have seen a rise in demand that has not been met by an increase in supply, for example. ), but on the whole, the record sums of money issued by governments worldwide in recent years are affecting relative pricing as a general rule. People should have figured out the link between monetary policy and prices by now, given the experience of the twentieth century.

Since the beginning of 2020, the M2 aggregate has increased by 40 percent, and the Federal Reserve's balance sheet has nearly hit $9 trillion. More than two-thirds of the money supply has been created by central banks over the previous fourteen years, beginning with the financial crisis of 2008, which set off a wave of unrelenting inflation. The Fed's unprecedented actions, including enormous asset purchases, were supposed to be transitory, right? Since the beginning of the decade, they've been around. Creating new money had little immediate effect on prices, therefore their ramifications were delayed. The need for money, rather than the quantity of money, is crucial.

It will take some time for price inflation to take hold if a lot of money is generated out of thin air, but people and banks are reluctant to borrow and spend it. Animal spirits will ultimately return, and as they have, money will be returned to its rightful owner.

Although no one can predict how high prices will go or what the relative prices will be in the future, we do know that things will grow worse and that this period will persist for a long time, despite what central bankers tell us. The era of high inflation has arrived. We did everything we could to make it happen. Here you have it.

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