Well, it used to be called inflation for starters!
Here in the UK conditions are rapidly spiraling downhill. Reports of energy bill increases keeps, well, increasing. The cost of food in the shops takes random hikes of as much as 100% on some products. Meanwhile the economy is not only not growing, it’s in actual decline. This is worse than the 1970’s stagflation – this is dragflation. In the 1970s the government and the corporate press conducted a tireless campaign blaming the trade unions and the workers for asking for more pay. This time the inflation is being blamed on Covid and Russia’s invasion of Ukraine.
The truth is both events have contributed to rising prices but they are symptoms of a sick system
.
The plandemic and the forced lockdowns of entire economies resulted in an enormous knock-on effect for the balance of global trade, creating bottlenecks and other problems. In this interconnected, just-in-time world, the breakdown of international supply chains continues to create huge supply and demand issues.
This has been compounded by the Ukraine war as sanctions on Russia placed more pressure on supply side issues. This includes the prevention of the opening of Nord Stream Two which is already having a heavy impact on Germany.
Disposable Income
.
This cost of living crisis means there is a fall in real disposable incomes, which the UK has been experiencing since late 2021. The weak anaemic growth in our economies over the last decade has been the result of an enormous fight over the forces of deflation versus the forces of inflation.
The situation is that since the financial crisis of 2008 the world’s central banks as led by the Federal Reserve, have;
conducted an unprecedented experiment with zero and, in some places, negative interest rates. They successfully prevented a repeat of the Great Depression, when a bout of deflation – a sharp decline in the level of consumer prices – destroyed the US banking system. But among the unintended consequences of this monetary experiment have been a surge in global debt, a proliferation of speculative bubbles, weak household savings and much wasteful investment, accompanied by stagnant economic growth. Edward Chancellor, an economic historian
However, as we are heading into a deep recession, these supposedly unintended consequences are combining to create a perfect storm. Although I would argue that to prevent a repeat of the Great Depression they purposefully chose to inflate and reinflate bubbles. Lining their own pockets as they went. This debt based system now continually requires new debt to keep growing.
What is Inflation?
Many mainstream economists like Vicky Price, the chief economic advisor at the Centre for Economics and Business Research, will tell you;
Inflation is an increase in the price of goods and services in an economy.
This is simply describing the outcome. Inflation is an increase in money in the monetary system. It is rising inflation that causes higher prices, however price rises are not always the result of inflation. Today, within the sub-context of inflationary monetary policy, we have high prices driven by lockdowns and sanctions.
I could go further and suggest that the plandemic was one enormous reason to continue printing money.
Here in the UK even the Bank of England has predicted inflation peaking at 13.1% in Q4 2022 and then it is expected to remain high and then somehow magically reaching the target of 2% in Q3 2024.
Just as in the 1970s we can see clearly in this crisis that it is wages that lag behind inflation. Whilst in the government’s own, fiddled figures, inflation is edging towards double digits, [wages increases are barely above 4%]. This represents a very real fall in wages. This undoubtedly will lead to strikes as worker’s face keenly felt cuts to their living standards.
Naturally, any action workers take to better their position will be met with the fiercest criticisms in the corporate press. The Tory government will resist wage increases and introduce further laws to prevent workers from fighting back. However, at this time the establishment aware of labour’s relative strong position and are aiming their sights at greedy energy companies. There have even be calls to nationalise them.
Falling currency
The term the cost of living crisis hides the reality that inflation is best understood as an upside down chart – it is the purchasing power of your currency that is falling.
As Craig Hemke, metals trader posits, we are at the end of the Keynesian experiment. What does the end look like? QE to infinity, reinflated bubbles to even greater proportions, debt mountains growing exponentially, helicopter money and finally attempts at price controls as inflation rockets uncontrollably.
War. What is it good for|?
AFP/GETTY
Inflation is one answer. The inflated expenditure on armaments and military personnel is completely unproductive, producing neither capital nor consumer goods. The society as a whole has to bear the costs of this war economy. This ultimately undermines the economy. At the same time war always increases national debt. They don’t say all wars are bankers wars for no reason.
In this way, war also becomes another way to create the inflation needed by the system to hyper-inflate the debt away. Look at the US response to the war in Ukraine which has been to send “aid” to the tune of more than $7 billion.
Although there are significant differences to the 1970s, at root we are also experiencing a similar crisis in the global currency order and it’s relationship to the world’s reserve currency, the petro-dollar. Here is a piece written in February 1971 showing many of the same concerns;
In reality the fictitious capital engendered by armaments production, the rigging of the stock exchange, the phoney issuance of shares without real capital, buildings and machinery to back it, the waste of the Vietnam War, etc., are the cause of inflation in America and elsewhere. It is impossible to remove inflation without eradicating the causes: consequently the attempt at a monetary squeeze in America has meant many bankruptcies, unemployment and rising prices. Inflation continues to mount. Industrial production has remained stationary or has dropped. In Britain the monetary squeeze, and the prices and incomes policy, resulted in high profits, an economic stop, low investment and rising prices. Ted Grant, editor of the Militant (UK)
To Conclude
So, the truth behind the cost of living crisis is that it hides in words the inflationary part. Hence it hides where the inflation is heading and why. The establishment will always look to blame anything to obscure the role QE plays. Cost of living crisis hides the fact that it is your purchasing power that is falling.
Today, within the sub-context of inflationary monetary policy, we have high prices driven by lockdowns and sanctions.
Right now workers think the price rises are crazy but that they can’t go up any higher. What will it take for them to lose confidence? From the leadership down everyone is taking this as a temporary, transient problem. Maybe some of it is, however the underlying processes at work will continue to operate.