The Party’s Over

Money, as most people understand it, is the bits of metal and paper issued by the country where you live. For Europeans, it is the colorful stuff issued by the European Union, rather than your home government. Even so, no one thinks much about money beyond what it can do for you. It is the cool stuff you can buy, how much you earn, and how much you have to spend for the things you need to live.

The West is suffering from inflation at the moment, so people are noticing that their money buys less than it did in the recent past. In most Western countries, fuel prices are 50 percent higher than a year ago. Food prices have doubled for some items, and the price hikes have only just started to bite. Britain is warning that they are facing the biggest drop in the standard of living ever recorded.

It has been over forty years since the West has seen this sort of inflation. That assumes the official numbers are accurate, which is unlikely. In the United States, official inflation is 7 percent, but that is using the new math. If we were using the same math we did in the 1970s, then the real number would be close to double. That is on top of the shrinking-container phenomenon called shrinkflation. Not only are prices going up, but the containers are getting smaller.

Experts are torn on how to blame this on someone other than the people who are responsible for it. Some say it is due to the supply chain disruptions caused by the Covid lockdowns. Of course, no one asks why the people who imposed the shutdowns did not think of this at the time. Others blame the price hikes on the sudden expansion of demand after the Covid panic subsided. Some, of course, blame Russia.

The main reason is that the Federal Reserve and the European Central Bank created trillions of dollars and euros out of thin air during the Covid panic. Throwing everyone out of work would result in food riots, so they showered the public with free money as a form of riot insurance. The trouble is the money did not magically go away, so we have the classic problem of too much money chasing too few goods.

Then there are the systemic troubles created by a generation of outsourcing and the general incompetence of the ruling class. They allowed the supply chains to become fragile by letting business chase the cheapest labor rates. This means everyone is now dependent on the least organized countries. Ukraine, for example, is where half the world’s neon used in making computer chips is produced.

That is only part of the problem. Since the invention of the petrodollar, America has been able to print as much money as it needs. The dollar is the default currency of the world, so those extra dollars always had a place to go. They would be spent on trade and then get reinvested by foreigners, usually foreign governments, back into U.S. Treasuries, which props up the massive spending by Washington.

The Global American Empire has been supported for the past half century by a novel form of seigniorage. This is the difference between the value of money and the cost to produce and distribute it. In the old days, the king would make a profit from the minting of coins used in his kingdom. This was usually a tax added to the total cost of a coin on top of the cost of production. This was the king’s profit from coinage.

Since the Louvre accords in the 1980s, Washington has been able to swap securities for newly printed banknotes by the Federal Reserve. This would normally impose an inflation tax on the public, but the dollar being the reserve currency of the world spread this tax over the global economy. Inflation rates in the United States remained low, as long as global growth remained high and the world was willing to tolerate this system.

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