Wednesday, March 30, 2022

Ezradamus: Australian Inflation Will Be 20% for 2020-2023.

From January 2020 to January 2022
- M1 money supply rose from 1091 billion to 1639 billion
- M3 supply rose from 2164 B to 2663 B. (23% rise)

There is nothing wrong with expanding the money supply in times of growth. But when money supply goes up, without a corresponding rise in productivity, then the value of money goes down - this is textbook inflation.

All the random fluff and excuses you will hear about war / supply shortages / covid / demand pull inflation / "transitory" / etc have short term effects on the inflation rate - but the bottom line still stands - The money supply expanded by 23% in 2 years over the course of the pandemic. And im pretty sure the country didnt become 23% more productive (making goods and mining resources) over that period.

Macro > Micro every. single. time.

Hence, expect the increased money supply to dilute every dollar in existence. It is a tax against money. And dont let any politician tell you otherwise.

How does this effect me?
I have a rather old school way of looking at society. Broadly speaking, there are three types of people:
- Plebs: Work for others in an unskilled job that can be easily replaced by random Joe Blogs.
- Proletariat: Has a skill, but works for other at the end of the day. You have a boss above you. (this is me btw)
- Bourgeoisie: Owns means of production. The shoplots. Factories. Mines. People work for you. You own capital.

Expect bills to rise faster than wages. Through every period of inflation with fiat currency, wages do rise, but not as quickly as inflation - it never does. Rent goes up because house prices go up.

Those luxuries you used to enjoy suddenly cost alot more. Starting to have to penny pinch a bit to meet grocery targets. But you take reprieve in the fact that your house has gone up 20% in value....ignorant of the fact that you need a place to stay and wont be selling it anyway. The house you live in is not an income generating asset. It doesnt mean anything...but at least you are buffered against inflation.

Your stocks, shares and property values have risen sharply. Your workers are demanding higher pay - sure. Here's a 3.5% pay rise to calm the peasants and to silence r/antiwork.

Why all the fuss about interest rates?
If you are wondering why the money supply is increasing, the oversimplified explanation is that low interest rates makes money cheap to borrow. BANKS SPAWN MONEY INTO EXISTANCE WHEN PEOPLE TAKE LOANS*.  Traditionally, when money was limited by gold in the bank, low interest rates would be a massive help to lower income people. But now, the reverse is true. Because the supply of money is infinite. Low interest rates actually hurt the poor without them realizing it. It makes their pay more worthless as the value of money declines. 

On Helicopter Money
The really big problem with democracy is that it ends up being a popularity contest - and if the population is not educated about money, it is easy to bribe them with 'helicopter money' (payouts). What people dont realize is that whatever temporary benefit from handouts/tax breaks they may have will be offset by a tax on money (inflation). So what if you get $1000 if in the long run, every dollar you earn will be more worthless.

Im quite a fan of democracy. So im writing this blog post to make people more informed about money to promote accountability and good governance. Education is key.

Of course, I dont have a crystal ball. But my educated guess is that by the end of 2023, most people will notice a 20% rise in their expenditure (groceries, utilities, etc) compared to Jan 2020. Time will prove me right or wrong. It sounds insane, but that's averaged over 4 years (1/2020 - 12/2023)... or about 5% per year. This is how insidious inflation can be. You dont think 5% PA is much, but it is actually insane in the grand scheme of things.

*with some limitations of course. There is a reserve requirement, legislated lending criteria etc... But at the end of the day it is really almost unlimited as interest rates approach 0% (it's 0.25% right now). In the US there's a fractional reserve requirement, in Australia, there are similar criteria set by APRA ("risk weighted credit exposures" etc.)