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Inflation: This crisis is just beginning

Entrepreneur logo Entrepreneur 12/7/2021 Alto Nivel
Vía Alto Nivel © Vía Alto Nivel Vía Alto Nivel text © Provided by Entrepreneur

Editor's note: This text belongs to our Opinion section and reflects only the author's vision, not necessarily the High Level point of view .

Last week, the president of the Federal Reserve (central bank) of the United States, Jerome Powell, finally admitted the obvious to his country's legislators: that it was time to remove the label of “transitory” from the inflation that continues to wreak havoc around the world, and one of the issues of greatest concern to investors and financial markets.

© Vía Alto Nivel

When you read or listen to a monetary authority pronounce on an economic issue, the prudent thing is to be as skeptical as possible. Because of the relevance of their positions and the significance of their words, they will almost always tend to underestimate problems or err on optimism so as not to "scare" anyone .

However, this time with everything and his admission of reality, Powell remains very optimistic. Watch out!

In this space we warn, even since last year, that the global economic crisis that exploded in 2020, not because of the Covid-19 pandemic, but because of authoritarian government decrees for the cessation of activities and mandatory confinements, would cause an economic disaster on the supply side that we are already seeing.

As if that were not enough, to counteract the destruction of value, wealth and jobs that they caused, governments and central banks launched the largest injection (creation) stimuli of money , debt and public spending in history.

A crystal ball was not needed then to “guess” that with a demand that would return sooner or later in full force after the confinements, the supply would no longer be there to satisfy it.

Also: in a fiat money system (inconvertible money, without backing) you can create all the liquidity you want. Money no longer even has to be printed or minted. All it takes is a "key" on a computer to create billions of dollars "out of nothing". But fiat money is not wealth. Fiat money are not goods and services.

Modern monetarists pretend the real world could obey their whims. As if the goods, services and merchandise that satisfy human tastes and needs could also be created "out of the air" at will. But it's not like that!

Goods - and especially raw materials (energy, agriculture, etc.) - have to be produced in order to be marketed.

But millions of companies and their employees no longer exist because they could not resist the cessation of activities to which they were condemned by the governments . They are not there to meet the demand of their customers.

Business opportunities are still out there, but it will take a long time for those spaces to be filled by fresh capital and entrepreneurs.

So, with return demand, unprecedented spending and credit stimuli, and a weak economy, something had to give: prices.

Prices are always messages that, for those who can read them, convey vital information.

At this moment, what inflation tells us - which is more convenient to understand as the loss of value of money rather than rise in prices - is that the degree of creation of money, debt and credit has reached such levels that Immutable economic laws will make us pay dearly for this “mortal monetary sin” .

The penance that we will all bear because of the bad decisions of our authorities, will be none other than the greatest global inflationary “shock wave” of the last 40 years.

It is in this context, already very serious, that the Omicron variant of SARS-Cov2 comes to add an additional component of tension and uncertainty to the world.

We are at a breaking point: I hope that governments do not stumble over the same stone of mandatory confinement, but what we will NOT be able to escape from is economic stagnation with inflation. The famous and dreaded “stagflation”. There is no escape!

The time has come to pay with a very severe hangover for the “drunkenness” of monetary corruption and government unreason.

So don't be surprised if in 2022, we start to see double-digit inflation rates.

Take precautions and act accordingly. It is not time to save, but to increase income and spend it all on assets that will protect us - and even make us win -. A great transfer of value and wealth is yet to occur, from the unprepared to the far-sighted. You decide which side to be on.

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