Greedflation

Cartoon by Kalininskiy at ToonPool

The UK has been demonstrating magnified versions of certain things that are happening in many developed countries.

That includes inflation. It flared up worldwide in 2021 but has been coming down in many countries. The UK’s core inflation rate is stuck at 8.7%. Inflation seems to be easing in many other countries more than it is here.

Pundits are in the news saying our high inflation rate is no longer driven by external factors. It’s driven by people spending too much at restaurants and hotels, and workers insisting on wage increases. That is counteracting reductions in energy and fuel prices.

This story is not making much sense. Inflation at the supermarket has gone down to 16.5%. In the spring it was around 20%. It’s as though the pundits believe we can’t remember that was the headline earlier this week. Wage increases aren’t keeping up with inflation. Pundits apparently believe we don’t realize that either. Or the fact that the prices we pay for electricity and gas have been orders of magnitude higher than in comparable countries.

Pundits insist the only way to bring inflation down is to intentionally push the UK’s economy into recession.

Ah, now we’re getting a little insight into what Powers That Be want the general public to think.

Interest Rates and the Mortgage Bomb

The Bank of England keeps moving interest rates up, as it did again this week. Isn’t it the 13^th increase in a row? This is the orthodox mechanism for softening inflation.

When people get a mortgage in the UK, it isn’t a 15 or 20 year fixed rate deal. It might have a fixed interest rate for a little while, as little as 2 years. After that the rate becomes variable linked to a benchmark which traces to the BoE rate.

Consumer advocates like Martin Lewis of MoneySavingExpert, whose perspective about money is on behalf of ordinary people, have been shouting that the UK is facing a mortgage time bomb and it’s beginning to explode. Normally, people remortgage when their fixed-rate deal is expiring. Now, a new mortgage is at the increased rate. It protects against further interest rate increases for a couple of years but locks in the pain inflicted so far. That’s if a new mortgage can be obtained. Banks have been not only reluctant to offer mortgages, but are now withdrawing offers they already made.

It isn’t unusual for a household’s mortgage payment to have gone up by several thousand pounds a year before this week’s rate increase.

Food, Energy and Housing Squeeze

We’re supposed to believe it was necessary to freeze people in winter, then starve people. It’s necessary to price people out of their homes. It’s about to be necessary to force such a distortion in the economy that we’ll go from low unemployment to many people losing their jobs at the very time when they need the income most.

The Bank of England has to kill the patient to make it better. The government doesn’t have the resources to do anything to ease the situation.

This might be believable if the windfall profits tax on oil and gas companies didn’t have such huge loopholes for escaping from it.

It might be believable when the government says it lacks resources if the government hadn’t funneled hundreds of millions to buddies in sweetheart deals, especially in the height of the pandemic for PPE that often wasn’t usable or wasn’t even delivered, or software that never worked right ,or test labs that didn’t process tests reliably.

This might be believable if we hadn’t spent several months hearing big businesses announce record profits, one after another.

The main culprits in this crisis aren’t ordinary people. The choice to make these times extra brutal for the general public is not for the public’s benefit. The conventional mechanism for quashing inflation won’t work when inflation is being pushed by an unconventional cause.

Don’t take my word for it. If you aren’t British, don’t console yourself by saying surely none of what afflicts us could be happening to you. We’re getting it worse than it has to be, but our affliction is not unique.

Greedflation

You may have heard a word for this weird phenomenon we’re seeing in which costs go up and instead of profit margins narrowing, profit margins widen. It’s called greedflation, inflation driven by greed. Certain companies have used rising costs as an excuse to boost their prices by more than their cost increases.

For a more expert view on that, listen to Albert Edwards. He is a global strategist at Société Générale, which is one of the most important banks in the global financial system. Click here to read an article at Forbes about his views. (You should be able to read the article without buying a subscription.) He says the situation is so dire, if we fail to end greedflation “we may be looking at the end of capitalism.”

Yes, that is in Forbes!

I’ve been pondering it ever since the article came out in early April. And guess what? Seeing this week’s financial news here in the UK, where we are magnifying what is happening elsewhere, and listening to pundits who expect us to believe them instead of believe our own experiences… Edwards may be right.