Don't worry, the White House will stop rising inflation by raising taxes

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Yesterday the head of the Bank of England, Andrew Bailey, warned of a ‘very real income shock’ this year together with an ‘apocalyptic’ warning about food price inflation. He said surging inflation is going to hit household spending and cause unemployment to rise.

But don’t worry, the White House has a solution. Raise taxes on the rich. Listen to the excruciating response by the new press secretary when asked exactly how raising taxes would bring down inflation.

Phew, I didn’t think our dear leaders knew what they were doing but after that response I’m very confident inflation will be gone pretty soon.

Back in the UK, Mr Bailey said ‘the main driver of inflation…is the very big, real income shock which is coming from outside forces and, particularly, energy prices and global food prices’. He told MPs that he felt helpless to do anything about inflation.

A bit more honest about the outlook but still not addressing one of the main reasons inflation is high and will continue to be high - money printing. Globally, the money printing machines have been going BRRRRRRRR 24/7 since the pandemic started (yes, I know it wasn’t physical machines going BRRRRRRRR). I also know that economics is complicated and nuanced but sometimes a simplistic approach helps to clear things up. More money chasing the same goods (or less goods due to supply chain issues) equals inflation.

This, combined with a changing working demography, has now led to a wage-price spiral. The era of cheap labour has come to an end, more people are unemployed but not looking for work and the pandemic has encouraged older folk to retire earlier.

The wage-price spiral will now ramp up with people changing jobs for a higher salary, meaning more “money” in their pockets chasing the same goods, pushing inflation ever higher.

As always the poorest will be hit first and hardest. The higher salaries will be available to the laptop class who cowered at home during the pandemic, demanding money printing and causing the inflation in the first place. They will be ok, their salaries will rise, their assets will go up in value whilst the rest fight over the scraps.

Andrew Bailey can see this wage-price spiral coming too, so much so that the only weapon in his armoury is to beg rich people not to take pay rises. £570,000 a year Mr Bailey said high earners should ‘think and reflect’ before asking for a pay rise.

To be fair to the monetary policy men, they are now in a difficult position. Just sit back and watch as inflation destroys everyone’s living standards or raise interest rates, cause a recession and destroy everyone’s living standards. The former will increase asset prices for the rich whilst inflating away government debt so I’m guessing they will go with that option. Either way, unless your are very rich, your standard of living is going down and very soon.

However, let inflation rip too much and we have scenarios such as we are seeing in Sri Lanka and Iran. Iran are now issuing digital tokens for basic food stuffs so I can guess you can see where that might lead.

Could this have been avoided or is this just a result of kicking the can down the road in 2008? Is the financial crisis of 2019 that never was, rearing its ugly head? Did the fortunately timed pandemic stop the 2019 crisis that was looking inevitable, saving Deutsche bank in the process? Have decades of quantitative easing and corporations and governments stocking up on more and more cheap debt compounded these problems?

Or do you think, like some of the comments here suggest (Fast Eddy), that this is purely and simply down to peak oil? 8 billion people being fed by oil is no longer achievable and and this is manifesting in the financial markets.


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