The 4-Horseman of the Economic Apocalypse: Inflation

[Joseph Medina]

I heard the second living creature call out, ‘Come!’ And out came another horse, bright red; its rider was permitted to take peace from the earth, so that people would slaughter one another; and he was given a great sword!

 So, here for the second week we have on of the most debatable topics of the economic apocalypse "Inflation." in the economic world we have inflation and deflation We are gonna discuss inflation as that's what we are having a problem with at the moment. 

We are in a interesting time in the economy, and we have heard Janet Yellen talking about the economy is growing too fast. Hinting at interest rate hikes. Historically, through COVID Jerome Powell has remained dovish on the matter and has stood his ground about not letting his dove dive into the ground and creating negative interest rates, but he has lowered them to help the economy. 

Now, we all have heard that Powell has said something along the lines of "we need inflation" and many of you or (the inclusionary Us) are sitting there thinking what?!?! Well, lets try to understand why. This is the first time in the history of the world where the entire WORLD economy came to a screeching halt. Think about the repercussions of stopping a full speed train dead on its tracks. What would happen? a disaster would happen. box cars would fly all over the place. Over the train around the train, and probably under the train. the world did that with the economy. let me repeat that one more time THE WORLD DID THAT. 

Well, how do we measure inflation. By the CPI the Consumer Price Index. it is a measure of how much stuff out of a basket of "traditional goods" can a 100$ buy. Well in certain parts of the US that 100$ will buy you the entire country of Tajikistan, and other parts it will be a lick of an ice cream cone on sale. 

with this very illustration it highlights a very broken measure, because a 100$ here in Houston should be the same 100$ in New York and the same 100$ in Hawaii. This is where the Chapwood Index comes in. It uses the same thing a basket of goods, but instead of 100$ they use 500$. here is a website to the index to check out your near by large city... this illustrates the difference. http://www.chapwoodindex.org/

So, commerce stopped, but the bills did not. providers of services held out their hand for the bills, because the "VID" does not effect money. So, all these businesses took out loans to just make the payments, probably increasing their long term debts. 

So now, we have all this free floating debt out there and no way of paying it back, because we halted people from going to work to be able to produce. So the deficit gets larger and larger and larger as time goes on ticking. Inventory starts to go bad or outdated, and people are needing to pay their RENT (which we will cover later *insert eye roll*) as Paul Getty stated "If you owe the bank a 100$ thats YOUR problem, but if you owe the bank 100 million dollars thats the BANK'S problem." 

So, we need more money out in circulation to fund these businesses that way they do not defaulting on their loans and these notes start imploding on the big banks ledgers "books." That way when you look at the M1 supply it rockets off in 2020. http://www.shadowstats.com/alt...

What does this mean? STIMI MONEY BABY! But as you look at the chart the M1 shoots up and the M2 is wanting to go up to. 

M1= liquid cash aka physical money (dollars and coins)

M2= Money in your banking account (credits) 

M3= Money in your bank's bank account (loan-able) 

easiest way to think of it is if the world did not have card readers how many steps would you need to take to get to physical cash. 1 step to pay 

2. access to bank to get cash, and then pay 

3. get loan, access bank to get cash, and then pay. 

When more money enters the market the value goes down and prices go up. Supply and demand more of it out there on the streets the less its worth, so the more i need to charge to get the same percentage return. 

Now, how do we combat inflation? Typically through the hikes in interest rates. If we hike interest rates we could very well destroy the economy as we know it. Why? 

lets look at it. Think of the economy as a big a** pyramid. at the very top is the world bank AKA IMF International Monetary Fund. (not gonna dive deep on the XDR and stuff but its at the top) then right below it are the national banks e.g. 

the federal reserve

Bank of Canada

European Central Bank

Bank of Japan

Reserve Bank of Australia

Reserve Bank of New Zealand

The Bank of England. 

So, the FED requires each bank to keep a certain "reserve" amount available for the fed to pull at any given moment and overnight might i add. the Fed also loans out to these banks at the national interest rate we are all familiar with. So, the banks, the same ones you and i use to hold our cash, pay the Fed for this money.  So, when Big Corporation comes to the bank for a loan they take out a huge loan at a few points higher than the rate they are borrowing. Surprise if you didn't know the banks are in it to make profit. 

So, now big business has this loan that their paying on they are able to hire, buy stuff, pay stuff off, and more. when interest rates are low the business can borrow for super cheap and do not have to pay much interest on their loan and it doesn't eat into their bottom line, so they are able to keep employees on staff. 

Now, the problem we have here in 2021 is that we have outrageous inflation and high unemployment. Usually its high inflation and stable employment. So, the fed raises the national interest rate, businesses borrow less, productivity becomes less, less product on the shelves, and because unemployment goes up less money in circulation.

We have the complete opposite happening. Businesses are not able to produce as much, BECASUE the government is paying them to stay at home, interest rates are low keeping big business in... well business, more money in circulation, and less product on the shelves because no workers to produce. So here we have two driving forces of inflation we have: 

No Workers wanting to work 

More money in supply. 

The first one is where the bomb lies. no one wanting to work. 

As i said earlier to speed up the economy the Fed Lowers interest rates to get business money cheaper to hire more to produce more which generates more. 

to slow it down raise interest rates charge more for money big business lays off employees, so production drops. 

this very illustration is directly applied to REI. When interest rates are low investors buy up everything in sight because its cheap, but no investor wants to pay back a 7% mortgage when they can pay back a 3% mortgage.

Here and now, we have outrageous prices, and no one wanting to work because of this stupid f****** stimulus money. Because of the Great Recession big business, to protect their bottom line in case of something like the current situation were to happen so they can weather the storm, kept wages low. Now, when Uncle Sam introduced this awesome unemployment package the majority of the line workers GOT A PAY INCREASE to stay home, and the worst part of it all the government keeps paying them!!!! 

So, if the FED increases interest rates it will only keep big business from hiring people, because its more expensive to operate day to day. So, the government is still footing the bill with stimulus. and the circle goes round, and round, and round until the economy collapses. 

So, what's the fix? 

well i have an idea and i have no idea how well it can work of if it is even legal. But the Rebel Capitalist used the perfect analogy of this stimulus money is like heroin. and the economy is adducted to it. If you pull it out of the economy all together crime will shoot through the roof, your homeless population will shoot through the roof and the situation becomes extremely dangerous. As i have said before in the fist post of this series i honestly think all this civil unrest has nothing to do with an unjust system or a system rooted by bigotry, but rather all this civil unrest is caused  by an imbalance of wealth.  it is no secret that the majority "minority" make up the lower social class and the working class. and the top 1% of wealth is held by the minority "majority". 

the solution is to stimulate the businesses. 

Crazy I know, but hear me out. Anyone reading if you have ever worked in healthcare you're very familiar with CMS. Centers of Medicaid and Medicare Services. there is a ton of paper work involved with getting reimbursed for taking care of children, the elderly, and the uninsured. 

So, if the business were to keep their wage the same lets say 10$/hr and the government were to put up (lets say) 5$/hr the person working will be making 15$/hr. So that same employee jumps from a 20K$ dollar tax bracket to a higher bracket of 30K$. the government gets back the money they injected into the economy in the form of taxes. the business that hired the employee keeps their margin the same because the pay increase does not affect their bottom line, since the government is paying for the extra 5$/ hr.  the business will probably produce more or the same and then they will also get taxed accordingly. that employee is now able to afford better housing, and they are able to move up into better neighborhoods, the gap between the middle and lower class starts to get a little smaller. And now the stimulus is not going to people sitting at home not producing. it is encouraging employees to return to work to stimulate the economy, because that's where the free money is,  and when the economy is too rapid and out of control pull the stimulus out of the business, the workers return back to 10$/ hour and the economy slows down. 

Also by doing this it will create more federal jobs, because you will need auditors to audit the businesses to insure every last cent goes to the employees and the businesses cannot line their books with free money to prop up their numbers.