Inflation in Germany reached a 28-year high of 3.9 percent in August. In September, this was topped by another 4.1 percent, and in October, the inflation rate rose again sharply to 4.5 percent. There are many reasons for this.
„People must understand that you cannot have a little inflation – because a little inflation always leads to more inflation, and higher inflation inevitably leads to even higher inflation.“
Friedrich von Hayek
Apparently, Hayek is right. Because it has been rising and rising for months. Inflation in Germany reached a 28-year high of 3.9 percent in August. In September, this was topped by another 4.1 percent, and in October, the inflation rate rose again sharply to 4.5 percent. Inflation also continued to rise in the euro zone: recently, it rose from 2.2 percent to 4.1 percent. Inflation in the USA has risen even more sharply: 5.4 percent!
There are many reasons for this: rising demand and catch-up effects, disrupted supply chains, deglobalization, and the large amounts of money that governments are pouring into the national economies through economic stimulus programs and central banks through the printing press. Officials are busy handing out verbal tranquilizers. Economists such as Marcel Fratzscher and, of course, the ECB, led by the non-democratically elected ECB President Christine Lagarde, who has a criminal record for money laundering, are not getting tired of telling people that this is only a temporary, short-term event. One should not be afraid and everything else would be pure scaremongering. When inflation continued to rise, they changed the narrative and celebrated inflation as something good: the necessary green inflation. Most recently, Lagarde has had to change her mind after all, as inflation in the euro zone has risen to a new high of 4.1 percent.
„You can fool some of the people all the time and all of the people some of the time. But you cannot fool all the people all of the time.“
The VAT effect is often cited as a reason in Germany. In the wake of the Corona crisis, the German government had implemented as one measure the lowering of the value-added tax from 19 percent to 16 percent, or from 7 percent to 5 percent. Now this has been reversed and from this adjustment process inflation is rising in the short term. But it is interesting to note that countries that did not cut taxes are also now reporting 3.4 or even 5 percent inflation.
In my current best-seller, I announced inflation and warned about it in a video in March in a video, and I was ridiculed. This forecast was a “no brainer”. Because as also the Bank of England stated: In the last 800 years inflation always came one year after the beginning of a pandemic!
I expect the tight supply chains to last at least until the end of 2022, if not longer, if there are further lockdowns. Of course, governments will continue to borrow, and in parallel, central banks have maneuvered themselves into a hopeless impasse from which they cannot get out. In order to continue stabilizing the fragile house of cards, they have to leave interest rates in the cellar and pump money into the system. If they were to change one or both of these things, it would be the end of the road. The measly economic growth would collapse, debt would explode, zombie companies and zombie states would topple and the stock market would be corrected significantly. Neither the Fed nor the ECB wants any of that. The European Central Bank (ECB) repeatedly emphasizes that maintaining “price level stability” is its primary goal and its most important mandate. To this end, it aims for an inflation rate of 2 percent per year. To me, this has always been paradoxical, because it means nothing other than that we all effectively lose 2 percent purchasing power every year.
With annual inflation of 2 percent, you lose half your purchasing power after 35 years. If inflation rises by just one percentage point to 3 percent, you will lose half your purchasing power after just 24 years. If we are to stay at 4 percent for the long term, everyone can imagine where the journey will take us.
In our wrongly designed debt money system, the expropriation of citizens will continue and society will become more and more divided. Since the introduction of the euro in 2001, the official devaluation of our money is almost 30 percent. The true inflation is, of course, much higher. We all know this intuitively. If the money supply increases at the same rate as a country’s economic growth, everything is in order and there is theoretically no devaluation of money, since all new money is matched by new economic goods (goods or services). However, if the money supply in circulation increases more than the supply of new economic goods, more money is distributed among the existing goods and services, whose prices then rise sooner or later. Thus, inflation is directly dependent on the expansion of the money supply. The equation is:
True inflation = money supply growth (M3) minus economic growth (GDP)
This equation goes back to the quantity theory of the Scottish philosopher and economist David Hume (1711-1776). For the best result, take the money supply M3. The money supply M3 includes all types of money (M1 and M2), as the following chart shows:
Since the introduction of the euro in 2001, we have already officially lost 28.2 percent of our purchasing power by 2020. Unofficially, it is far more, namely 87.53 percent! And these figures are before rising inflation in 2021! Now we are definitely above 90 percent!
The fact is: We are all being quietly expropriated by inflation, because we are losing purchasing power. We can acquire less and less for our hard-earned money, because the euro is steadily losing value. Inflation is reflected in rising asset prices such as real estate, stocks, art, classic cars and especially Bitcoin. These have risen rapidly recently. Against Bitcoin, the euro and all other paper currencies are even already in hyperinflation.
For this reason, it has never been more important to protect one’s purchasing power from inflation. Money in the account makes no sense, not only because of inflation nibbling away at purchasing power, but also because of the ECB’s zero interest rate phase that has been going on since 2016 and the risk of expropriation through the SAG law. Nonetheless, German savers have almost 3 trillion euros on the high side. The flight into concrete gold is also no longer advisable, the prices in many areas are already in bubble mode and in other cities are already quite ambitious. As long as the states continue to incur unlimited debts and the central bank prints unlimited money, you have to do exactly the opposite as a kind of life insurance for your purchasing power. You must invest in values limited by nature and by mathematics. These are the old proven stores of value like gold, silver, diamonds but also commodities and stocks and the new digital gold Bitcoin. There are many valuable tips on this in my new book and on my YouTube channel. Start now! Because the inflation will not disappear by a Christmas miracle even if Lagarde and Co. wish ardently for it.
The content of this article was translated from the German original: https://www.friedrich-partner.de/blog-post/die-inflation-ist-da-und-bleibt loaded 07.12.2021