The Inflation Monster: How Monetary Policy Is Dwindling Savings

[sysop]

Central banks are currently flooding cash-strapped industrialized nations with money. This may help governments reduce their debt load, but it also erodes the value of people's savings. A massive redistribution of wealth is threatening to take place in Germany and Europe -- from the bottom to the top.

http://www.spiegel.de/international/...-a-860021.html

[awareadams]

Assuming a "flooding" of money markets, this flood is needed and going to debtors to help pay down debt. When new money is used to pay down debt, it does not "flood" the money markets: it has a zero multiplier., e.g.
government loans to business in debt. loan is used to pay off accounts receivables,or a bank loan. There is no increase or flooding of money, and hence no inflation.
It is the debt "bug-a-boo" that haunts the U.S. and Europe. The only other way to deal with the debt is declare bankruptcy,or go out of business. This produces massive unemployment---and may solve the problem by bringing on another Adolf Hitler who solved the problem by issuing "work certificates" and telling the creditors to "get lost".

[SHBasse]

It is the first time that I have seen Spiegel quote that it is not only a debt (monetary) crisis but also a growth crisis!
Politicians want everything to revert to the good old days before 2008 and expect it to happen sooner or later. Regrettably that is not going to happen!
It is still not recognized that the growth problem started in the 1980tieth (in the US in the 1970tieth) when capital and firms were freed from the national economies, and that the economic crisis is the result of that “internationalization development”! The article below THE FUNDAMENTAL CAUSES OF THE CRISIS was written in 2008, but the theoretical framework for the article and the prediction of the inevitable crisis was written 16 years ago and the warning was renewed in a paper written in april 2007 (in Danish) – a whole year before the crisis emerged!
http://unifiedscience2.blogspot.com/...-downturn.html

[lesintho@free.fr]

I sincerely hope, for Europe's sake, that someone will cure our German friends of their hard-money obsession some day.

First, the notion that inflation is redistributes from the bottom to the top is total, utter, nonsensical rubbish. What it does, admittedly, is temporary redistribution from savers (holders of nominally-denominated assets) to borrowers (with nominally-denominated debt). Poor people (who often hold more debt than assets) would benefit from monetary expansion, at the exclusive expense of rent-seekers. So what has been the track record of the ECB so far ?

http://marketmonetarist.com/2012/05/...graph-version/

Inflation (as measured by the GDP deflator, i.e. prices of goods manufactured in the eurozone over which the ECB actually has control, unlike food and gas), has been TOO LOW FOR YEARS. At a time when the euro-economny is crushed by huge misallocations of capital, the ECB has tightened monetary policy while pretending to do otherwise to placate the German conservative electorate. Look at the data: Monetary expansion and credit creation have virtualy ground to a halt.

http://marketmonetarist.com/2012/07/...graph-version/

After an uncontrolled expansion in 2005-2007, the ECB panicked over nonexistent inflation in 2008. The crisis we are going through is the result of this double incompetence. So what does competent monetary policy look like ?

http://esoltas.blogspot.com/2012/06/...gets-ngdp.html

The Central Bank of Israel performed massive stimulus at the start of the crisis. Yes, inflation shot up to 6% over there. Did it get out of control ? No. Did they go back to full employment ? The lowest unemployemnt rate in 30 years.
So did Sweden and Poland. In 2009, the Israeli CB was the first in a developed country to raise interest rates, while the ECB is still caught in a situation where it will have to lower rates more and more, for lack of a will to administer a sharp shot of stimulus.

Yes, these low rates that are so detrimental to savers are a consequence of past hard-money policies.

http://www.businessinsider.com/charl...-rates-2012-10

Rates lower than inflation are necessary to keep the euro-economy on the brink of collapse. Raising them now would mean deflation. Ah, savers would be happy ! Until their bank, their economy and their country goes bust, that is. Look at what happened in the 1930's in Germany: Chancellor Brüning's hard-money and austerity policies, supported by all mainstream parties, caused such economic collapse that the political class lost all credibility, putting extremists in power. In 1932 the new chancellor left the gold standard, devalued, and started massive fiscal stimulus. People had jobs, they started to like him. The rest is history.

I am amazed that such a great country be incapable to learn from its own history, to the extent of repeating it line by line.

The ECB's pure price-stability mandate is based on faith, not science, and needs to change. Shout it on the rooftops !

[peterpan@trash-mail.com]

People who want inflation have debts.
People who do not want inflation have savings.

[SRKulkarni]

quote-" Anshu Jain, the new co-CEO of Deutsche Bank -- who as a man born in India is less likely to be burdened by thoughts of hyperinflation that worry many average Germans."Unquote
Not sure what to make of it...a statement of contempt or utter ignorance or plain old fashioned cultural myopia !

[BTraven]

Originally Posted by lesintho@free.fr

Yes, these low rates that are so detrimental to savers are a consequence of past hard-money policies.

It has been told people for more than ten years to save in order to keep the level of their living standard when they retire since they will get a much lower pension because of demographic reasons – those who work are not capable to earn that amount of money old people used to get. So they started to save money under the promise of low a low inflation rate. They should have spent the money. Perhaps Germans are obsessed with inflation, however, many, especially those who don't own property, are in a really difficult position.

[parboiledspiegel]

and promotes a wealth transfer from bottom to top:

In an inflation ---
- the debtor wins (and the biggest debtor is the government)
- the treasury wins, because of fiscal drag (look this up if you never heard about it!!)
- are tangible assets the safest (real estate, bullion, art, etc), which is exactly the kind of assets Joe Average does not possess
- the loosers are the owners of pension plans, life insurances, savings accounts
- the loosers are all people dependent on a salary, unless they get an automatic compensation (which is very unlikely, see the point about fiscal drag)

So far, so bad
Other points are

- There will be more social unrest, since people have to constantly fight for higher wages. High inflation is one reason why the latin countries (latin america but also latin europe) are notorious for strikes and union riots.
- As a corollary: Unions could have an interest in high inflation. Are you, JW, a unioneer?

And last but not least there is the ultimate moral hazard
- In an inflation, the person who makes provisions for the future and spends cautiously is actually the idiot. Do we want that?

Read more: http://www.businessinsider.com/der-s...#ixzz29OMcIHuP

[titus_norberto]

The very root of the problem is the fact that THERE IS NO REAL MONEY available after Breton Woods and the Kissinger-Nixon duo US default of 1971.

The Hollywood cowboy Reagan and Thatcher completed the scam with global financial DEREGULATION that allowed the final looting of the world by the USURERS.