Is Inflation Here to Stay?

First, the important things.

I went shopping again yesterday. I didn’t need much, but here is a copy of the bill so you can see what some things cost here in the Algarve.

And the weather is still really nice. It’s like the best springtime in Northern Europe. Temperatures yesterday reached 24C degrees. It’s certainly chilly first and last, but no sign of any frosts yet. Temperatures maybe get down to mid single figures round about 4.00 a.m. Here’s the latest weather chart, and a pic of the garden to accompany that.

Now down to more boring things.

We have a rather concerning treadmill unfolding across the western world. Deficits, which require funding with money that has to be created, thus adding to the curse of inflation. And do remember, inflation is not a matter of rising prices. Rising prices are the result of a drop in the value of money, so inflation is in reality, the loss of purchasing power. This is driven by government mismanagement resulting in money creation. You cant create money out of thin air without depreciating that money, which then means everything costs more.

Here in Portugal that is mirroring what is going on all across Europe, except, of course, Russia. Money is no longer worth what it used to be worth. An obvious example of this is the price of money over the past generation. When I was starting out in business, if I wanted to buy some money to help me develop that business, the money cost me 10% a year in interest. More recently I have been borrowing at absurdly low rates. I do still have one loan running. For the past twenty years or so the interest on that loan has been 1.75%. That’s the cost of the money. In other words, that’s all the money is worth. Not much. It’s less than inflation. That tells me that the value of money is dropping every year. It really is that simple.

The interesting thing is that prices in terms of the value of gold have not moved. That confirms that prices aren’t really rising, instead the value of the currency is falling against the only real money, gold.

So what is happening against this situation? Strikes of course. Here we now have a teachers strike. That is going to impact on the economy a decade or more down the line. Just think about it. Over the past couple of years schools have for most of the time been closed due to the pandemic. Now they are closed again due to strikes because the workers are being squeezed due to government incompetence and general over-spending. What is this going to do to the learning process for the current crop of school-age kids? The educational system here is not very good to start with. With all the gaps in their education these kids are going to grow into a generation of more backward adults.

This is coinciding with the increase in automation and artificial intelligence. It is the less intelligent adults who are going to find they have less and less job openings for them. And that is going to lead to a larger underclass who will need to be supported by those who are in a happier situation. How long before that leads to resentment? Why should the bright folks support the less bright? Does a civilisation need a large underclass? If it finds itself in such a situation, do we go back to a society which is to a large extent split along class lines?

We have just gone through a century where such class lines were largely eroded. Increases in automation, and the general march of the second industrial revolution brought the vast majority of the underclass into the middle classes. We are now seeing the erosion of the middle class across the western world. The third industrial revolution, which really got under way a generation ago is making large swathes of the new middle class irrelevant. That is going to cause massive social unrest. Things are not looking good.

I suppose I should say that I wish the teachers well in their strike for better pay and conditions. That will no doubt lead to a pay rise, which will be funded from a deficit account, which will require more central borrowing which will require more money printing, which in turn will depreciate the currency even more, and the treadmill goes on and on. One really does have to ask at what point does the whole situation collapse? Western civilisation is playing a game of musical chairs where they cant ever allow the music to stop.

The western world represents no more than a quarter of the population of this planet. The other three-quarters are going to take advantage of this situation. The BRICS nations are already doing so. The result is not going to be pleasant. Europe is now on the losing side.

What usually happens in similar situations throughout history is that the fading social order refuses to give up its ideas and practices, and eventually goes down sad, puzzled, and unloved.

This disaster is going to take some time developing. I may be wrong, but I think we have gone too far down the wrong road to stop the ultimate decline, and a much lower standard of living, less social order, and a serious loss of freedoms.

Not exactly the way to start a new year, but the biggest problem with fading civilisations is the obstinate refusal to face reality, and accept that maybe another system could be more efficient.

Maybe inflation is here to stay simply because western governments have destroyed one of the things that make the world go round — MONEY.