"The Horsemen are drawing nearer
On the leather steeds they ride
They have come to take your life
On through the dead of night
With the four Horsemen ride
or choose your fate and die"
Inflation is spooking the chattering classes! With every quarterly revision (upward, naturally) of the BoE (or ECB or Fed et cetera) inflation figures on the evening news bulletins hard working, mortgage paying, middle class wage slaves all over the ever declining and decaying western world squint a little harder at their TV sets, gnash their teeth a bit and clench their buttocks in anticipation of yet another incremental reduction of their spending power. Why, oh, why - you can practically hear them complain - is there no one doing anything about the steady erosion of our purchasing power? Why does purple sprouting broccoli cost so much more than last year? Why does no one do anything about all those foreign folks (Asians, mostly! - just savour the barely suppressed xenophobia before you move on) driving up prime real estate prices in central London? Why can I no longer afford to fuel up my over-featured and over-motorised SUV every other day with the careless swagger and pay those public school fees?
Well, I guess the answer to these question is that while it sucks to be made poorer through inflationary pressures, it is a (a) whole lot less painful than being made poorer through deflationary pressures (at least as long as that inflation rate stays vaguely in control - but more about that later) and (b) this might actually be a policy in your favour. How come? Our peerless political and economical leaders obviously have almost zero incentive to spell this out plainly (they _do_ want to be re-elected, by and large), but this debate is not really about whether making most of us poorer is something that needs to happen, but how they go about engineering this. The point being that as political, public and private entities in the majority of countries of what is commonly termed the West is so terminally over indebted that there is really no credible way to avoid some form of wealth adjustment. If you don't think so, then don't worry, reality is entirely optional given the right mix of sedatives.
One of the great benefits of living on the middle class reservation that is the EU/US/Japan megaplex is that we get to chose what currency we denominate the debt that we have taken on to pay for all those flatscreen TVs and iPads. The poor suckers that have accepted our IOUs (I.e. The hapless sovereign wealth fund managers of the People's Republic of Hypocrisy who have bought our sovereign debt) didn't get to chose. They had to make do with a selection of USD/EUR/GBP/JPY denominated paper. Now until fairly recently they didn't worry too much about that as they were never interested in letting their own currency float on the international exchange markets, after all they do want to indefinitely maintain their low cost base as a primary competitive advantage (otherwise they might have to - gasp! - in cease competitiveness through innovation). But as it turns out, fixing your exchange rate against your primary export markets ceases to be an unequivocally smart move when you end up being a significant creditor in such a currency and the debt issuer decides to debase their funky fiat currency. In fact you'll get hit twice! So, when chairsatans Bernanke and Trichet turn open the spigots of monetary policy and fix interest rates at historic lows not just for now but even for years to come your precious surplus Dollars/Euros/whatevers become worth less and less to you. In effect the creditor nation gives a subsequent discount to the goods previously exported to the debtor nations. Annoying,no doubt. However, the real kicker comes not from the depreciation of your assets (those precious sovereign debt bonds), but through the import of inflation through the back door. Sadly, for our Chinese friends, not only are the sovereign debt markets dominated by a handful of currencies that are not their own, also a lot of the world's trade in commodities is. Which is a bummer if you are a manufactured goods exporting creditor nation. Low USD or EUR interest rates will lead to increased inflation not only in developed (and over indebted) nations but also in commodity markets. And that means imported inflationary pressure back in mainland China. So, if you are on the CCP's central committee you now are facing Hobson's choice: abandon the anchor your currency (crawling, if you want to be finicky) peg and let the RMB appreciate (and thus limit the inflationary pressure through imported commodities while at the same time making your export industries less competitive) or stick with it and watch food and energy prices go through the roof.
You see, the big unspoken about inflation is not that it sucks for all, but that it sucks a lot harder if you are poorer. And that's where this is all beginning to make sense. Joe Bloggs in Sampletown USA will whine about gas costing him 5 bucks a gallon. But if he is _really_ under pressure and still needs to drive fro his daily commute he _can_ go and buy himself a flipping Fiat 500 instead of that Ford F150. Whatever the Chinese equivalent of Joe Bloggs in rural China is probably won't find that so easy. If you spend 90 percent of your income on food and fuel, then doubling the price of staples like say wheat actually is a bit more of an issue. Oh, and please spare me comments about how disaffected youth rioting in London shows that there is real poverty in the west too. Of course, there is. But it's pretty insignificant. The motivation behind rioting because you can't afford some Nike AirMax is not quite the same as when you riot because YOU ARE STARVING! some monetary policy, eyh?
Now, I understand that this is a pretty sweeping arc and it presupposes all sorts of machiavellian machinations and reptilian cold bloodedness on the part of the monetary policy committees of the western world, to a degree that makes the Rothschilds look like amateurs and will make Ayn Rand devotees wet themselves with delight. And on the balance of probabilities whatever they come up with is more likely to be cock-up than conspiracy. But if I can thin like that, I should imagine, so can they. Am just saying...
Off to the pool now!
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