The Coming Wave of Inflation Demands LaRouche Economics
The current debate on inflation recalls the figure of Don Ferrante in Alessandro Manzoni’s famous I promessi sposi (The Betrothed) novel. Don Ferrante was an Aristotelian who, in the midst of the 17th century bubonic plague in Milan, concluded that, the disease being neither accident nor substance, it simply did not exist. Eventually, Don Ferrante died of the plague.
Similarly, the White House commented on the unexpectedly high rise in the Consumer Price Index in the United States for April (4.2% on a yearly basis), the worst since 2008, by calling the increase “normal”. Federal Reserve chairman Jerome Powell has acknowledged an inflationary wave ahead, but has characterized it as “transitory”. So did the Bank of America in a recent report, although forecasting “transitory hyperinflation”.
Different from the White House and Western monetary authorities, the People’s Bank of China has pointed out that the coming inflation wave is not at all transitory and declared who the villain is. In its Q1 report on monetary policy implementation, the PBOC comments on the surge in global commodity prices, noting that as of the end of April three major composite indexes –the WTI crude oil future price, the LME copper future price and the CRB commodity spot price index –have risen by 187%, 89% and 51% year-on-year respectively.
Ultra-loose monetary policies, according to the report, is a contributing factor to the rises, along with stimulus packages and the effect of the pandemic on the supply of commodities. It stresses that the influence of these factors is unlikely to be eliminated in the short term, and so the inflation of commodity prices in the global market may continue.
In fact, “ultra-loose” monetary policies have allowed huge amounts of speculative money to flow into commodity speculation. And true, the lockdowns have produced a supply and demand gap which has driven prices upwards as the global economy recovers, but prices on the future markets are mostly determined by hedge funds and others that bet on rising prices but will never buy those commodities. The expectation of further increases in commodity prices has pushed producers to buy more than what they need, thus creating an artificial scarcity and feeding into the price spike spiral.
As Bloomberg reported on May 18:” Mattress producers to car manufacturers to aluminum foil makers are buying more material than they need to survive the breakneck speed at which demand for goods is recovering and assuage that primal fear of running out. The frenzy is pushing supply chains to the brink of seizing up.”
U.S. Stock Market Soars to Absurd Heights
The other dynamic which has been driven by central bank liquidity is asset-price inflation, or the stock market bubble. Pam and Russ Martens have calculated that the U.S. stock market is now bigger than the combined GDP of the U.S., China, Japan and Germany put together!
While the “GDP” and the “stock market value” are quite fictitious quantities, and the situation is therefore actually far worse than their comparison indicates, the comparison the Martens make is a useful heuristic device that conveys why everyone, including the most morally corrupt, should worry.
As Lyndon LaRouche insisted, within the current system, central banks have no other choice than trying to avoid the bubble to burst by ever increasing liquidity pumping, with the effect that sooner or later, the asset-price inflation turns into real inflation and gets out of control – hyperinflation. Ergo, the system itself has to be changed.