Monday, July 14, 2014

Inflation

Long ago, this one suggested that inflation was used to water down middle class savings, to which a reader commented:
Elites dislike popular control over corporations, but they (especially they) also dislike inflation. In fact, rapid inflation (not out of control hyper-inflation, of course) is the best thing that could happen to the commoners - the debt melts away, the wages go up, and the consistently rising prices stimulate all sorts of rag-tag economic activity.

This is also why the tradeoff between inflation and unemployment is a completely false one, and this is also why the Fed entirely gave up on full employment half a century ago, and focused on curbing inflation instead...
There's a point to the idea that elites dislike inflation. If things were that simple, yes, inflation would theoretically help people, by reducing the effective value of their debts. For example, if you owed Visa $1,500 in 2014, and in 2015, $1,500 was only worth $1,400 in "2014 dollars," you made $100 and Visa lost $100--all within the artificial world of fiat currency, but accepting that as real, you made $100 and Visa lost $100.

Since elites derive their power from rents derived from property law--this ridiculous theory about why certain people are entitled to sit on ass and collect money, while others must work--inflation, in theory, waters down their holdings. Elites control banks, to which people constantly owe money, so inflation reduces the effective value of the debts, "freeing" people.

Let's not forget who we're dealing with here: the same people who invented private property, fiat currency, loans, interest, the delusional narcissist serial killer known as "economic theory," and inflation. These people are not about to let a reduction in effective value of debts actually harm them. They made all the rules that govern these economies, and they retained the power to formally and informally change the public and concealed aspects of these rules, and how they really affect things. Ergo, the popular illusion that inflation harms them is a myth--inflation is actually a tool used to limit elite membership by decreasing the effective value of underclass attempts to save.

Rising Tides

In Wealth and Power, we previously addressed the nature of changeling economics:
The real value in money, and the value that the elites have always understood since they made the Enlightenment switch, is the power it represents in sufficient quantity and type of investment: the power to never have to work again unless you want to. The power to have a say in "government." To maintain this kind of power, elites think generationally. It's not enough to be "rich" in the "now." To actually be rich, you need to be so wealthy that your holdings can generate enough income on their own to:

1) Replenish themselves over generations, weathering inflation.

2) Maintain luxurious lifestyles/appearances for the family.

3) Tithe the process that sustains you, by buying candidates, media, and controlling social policy through charities. This is the real "tax" that elites pay among themselves, like country-club membership fees in the Earth Club.

Flashes in the pan can sometimes manage (2), or very rarely (3), through savings alone, but as long as they spend it up within a few decades, they're not really part of the system: they're Cinderella at the ball, and everyone else knows the trappings will disappear at midnight.
That's the way it works with inflation: inflation is a constant attack on everyone, which attack can be easily endured by elites. Like releasing a very low quantity of toxin into an environment where only the 1% can afford the long-term medical care necessary to address the effects of the toxin, the only people permanently harmed will be the underclass. We looked at this "washing out" effect in Chips in the Casino:
[T]he human race can only bear the burden of so many parasites leading extravagant lives, before it breaks. And when it breaks, the parasites’ wondrous, star-studded lives will end. They will be thrown down with the rest of humanity, and forced to produce something useful to survive. And they already know that they can’t do that.

So, they need to protect the exclusivity of the parasite class. They need to guard the numbers game against the by-products of its own rules.

They do this by regularly “washing out” the rising middle class. Here is where inflation and financial crises come into play: by manipulating the game to cause periodic crises, those who have almost attained the heights of elite status can be knocked back down to the peasantry. Then the cycle can begin anew.

To understand this, imagine a society on the slopes of a mountain. Above five hundred meters elevation the elites have built their mansions. Most peasants have their houses at one hundred meters. As time passes, wealthier middle-class peasants begin building houses higher and higher.

When [the building reaches a height of] four hundred meters, the elites release the dams, and flood the hills. All houses below five hundred meters are wiped out. The elites endure a minor reduction in their quality of life, but in return, everyone below four hundred meters has to start from scratch. And the cycle begins again.
So what if elites lose a large "percentage" of their imaginary "debts" and "rents"? They invest nothing real to obtain those returns (they "invest" only fictitious components of their colossal social power). Inflation doesn't harm them, because any reduction in their pretend numbers is offset by reduction in the threat posed by middle class savings. Moreover, rents have usually already been adjusted to exceed inflation.

Inflationary Counterparts

In 2014, Manual Labor owes Visa $1,500. In 2015, inflation causes that debt to be worth, to Visa, only $1,400 in "2014 dollars." However, Manual Labor's debt is now $1,531.76, because of two "periodic finance charges" as well as his regular accrued interest. It appears as though Visa, while making money, may have made very little money as a result of the past year's inflation ($1,531.76 - $1,500.00 = $31.76).

However, in 2014, Middle Manager has paid off all his credit cards. His home equity is valued at $80,000 in 2014 dollars, and in 2015, subject to the same rate that hit Visa vis-à-vis Manual Labor's balance, Middle Manager's $80,000 of equity drops to a value of only $74,666.66 in 2014 dollars. Middle Manager, though, is still bound by the terms of his mortgage, so he continues paying off the house pursuant to its value in the year he bought it (probably at a far higher value than it is worth in 2015). Years later, when Middle Manager is ready to downsize for retirement income, his investment will have been hit hard--although, during those years, he gets the benefit of paying property taxes to local construction companies for upgrading the gym and the administration building at the local K-12s.

At the same time as the elites, via joint holdings in Visa, have "lost" some money on Manual Labor's watered-down debts, they have achieved a net gain. Their real estate holdings have lost face value, but where it counts--relative value (pursuant to the elite Law of Contrasts, the only way they can perceive value is relatively)--they are now worth more in comparison to Middle Manager's holdings. Their liquid holdings allow them to snatch up assets, be they stocks or bonds or houses, at a lower value, while many retired Middle Managers have to sell them to supplement retirement income. Later, when values are up, those with the flexibility to do so (elites) will switch to cash. Their capital gains on hard assets in the meantime will far exceed the "losses" they will endure when their cash holdings suffer a few years of inflation.

As between Middle Manager and Manual Labor, elites have lost $68.24 on Manual Labor ($100 lost by the devaluation of Manual Labor's debt from 2014 to 2015, offset by the $31.76 of interest), but correspondingly depleted Middle Manager's holdings by $5,333.34. This means that it takes more than seventy-eight Manual Labors gaining reduced debt in order to offset the loss suffered by just one Middle Manager--on home equity worth, in this soft-shoed example, only $80K. Even better for rentiers (collectors of rent; parasites), Manual Labor may have a mortgage of his own, so even if he could be said to have "gained" $100 (less interest) on his outstanding Visa bill, he also lost so much on his home equity that his loss is staggering overall.

Manual Labor probably owns a car, too, which is devalued in all the other lovely ways that homes are, but often even faster. He continues paying his car loan at 2014 dollars, while the effective value of his car--even if he didn't drive it a single mile--is reduced due to inflation. If he's not a homeowner, the company that operates his apartment building raises his rent in accordance with matching inflation. There really is no way for him to win, except in some fanciful economy where bargaining power allows him to force his employer to give him constant cost of living raises.

Less intelligent capitalists often blame the poor for "not saving," but actually, many of the poor try to save--and are stymied, yearly, by those innocuous inflationary and consumer price changes that come out of the seeming blue to fuck up their plans to set aside a couple grand for later. The fight is fixed at every level, so it takes sheltered lunatics or classy alien bastards to advocate that they really could get ahead--even when working multiple jobs and pinching literally every penny results in a small yearly surplus that is constantly emasculated by coordinated inflation.

Washing Out

Far more important than merely making money, though, the inflation game produces a priceless effect. By destroying the value of Middle Manager's $80K in home equity, and of Middle Manager's $120K IRA, elites have ensured that Middle Manager (or his children, or their children, et cetera) will not themselves become elites. Bill Gates is willing to lose a bajillion dollars of imaginary value, so long as the same recession also crushes the chance that a hundred thousand new middle-class households will develop reliable savings sufficient to let them become low-order parasites. It doesn't matter to him or his fecal ilk, as throughout any numerical downturn, they will retain the ability to be forever secure atop unbelievable piles of money.

Manual Labor's tiny "gains" on his Visa bill are offset by corresponding reductions in the value of his own home, car, and checking account, so even when he appears to win, he's already lost.

In Middle Manager's world, America is filled with doctors and engineers and pharmacists making six figure salaries; if these people were able to reliably accumulate wealth in hard assets, then after a generation or two, they could join the elite rentier class, thereby taking for themselves some of the proportional share of elite power. By periodically destroying the value of various investments, bankers can stock-hop and nation-hop their way around the world, living extravagantly off interest, never producing anything of value, and always able to buy their way into protected niches.

Yawn. The Romans saved us from barbarians, France saved us from the Prussian tribes, England saved itself from Napoleon, America saved itself from King George, yawn, yawn. Same story, same bankers, always privately secure in whatever the hegemon is for those few generations.

Other Systematic Considerations

Naturally, the "inflation" would only hurt elites, via one of their holding companies (say, Visa), if Manual Labor had seen a corresponding increase in his wages. Instead, the corporate media received memos (<----cool/evil) that year that "inflation" was going to be used to justify nationwide reduction in wages and working conditions. Manual Labor was lucky not to lose his job, and he didn't even get a demotion or a reduction in pay! However, he's now paying a greater share of his health insurance, and is required to lease a company-owned vehicle in order to get to job sites. The same-sized paycheck, or even an increased paycheck, is devalued by the inflation that made his Visa bill theoretically smaller, so as he buys groceries and pays his bills, he's constantly hemorrhaging the same dollars and cents, to the benefit of the same owners, that he's supposedly saving through increased paying-off power on his Visa bill.

Hyperinflation, like pre-Hitler Germany, is no more of a boon. Debts vanish, but the immiseration of the populace leaves them even more pliable pre-dead subjects. Before that kind of thing hits a country, elites have gained new citizenships, or taken control of hard assets in other places, so they're never around holding the bag with others when it's time to wheelbarrow your way to the dispensary.

That claim--that hyperinflation is bad--is pretty easy to understand and accept. What has proven really clever about economic theory, though, is elites' constant hint that inflation "hurts" them. It's hilarious, since they create it, and their publications and talks constantly indicate, tongue-in-cheek, that they dislike it...and what, other than their open acknowledgement of their concern, could be a better clue that they actually don't care?

(After all, look at Saddam Hussein--when he gets installed to rule Iraq, they say he's a reliable, stable leader--which is our clue that he's a genocidal madman. Years later, Saddam has calmed down, and is actually doing a fair job keeping western-funded extremists from tearing the country apart. He starts to reflect on his life and decides that maybe, he can leave Iraq better off than he found it...at which point western elites begin calling him a genocidal madman. Well, you know that story.)

Saying that elites worry about inflation is like saying that they worry about Palestinian home demolitions or social breakdown in north African oil-producing countries (sic).

1 comment:

  1. There is another way to look at it (though with the same outcome).
    Since inflation essentially means too much money chasing too little goods, this can be understood as the consequence of the inevitable consequence of capitalist economies to stagnate. A capitalist economy is enormously productive, and can always produce much more goods that can conceivably be sold at a profit. Accordingly, capitalists at some point need to limit production (surplus that cannot be sold will not be produced). As a result, limiting production raises prices, causing inflation, and maintaining profits. I.e. inflation does not cause even imaginary hurt to capitalists.

    Look at the industrial capacity utilization:
    http://www.federalreserve.gov/RELEASES/G17/current/default.htm

    More than 20% of machines (and more than 20% of workers) literally sit idle, just so capitalists can continue to make a profit.

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