Sanctions against Russia will fuel high inflation for some time to come

[MongiIG]

The far-reaching effects of inflation will be with us for some time to come, fuelled by the sanctions against Russia. IGTV’s Jeremy Naylor caught up with Marc Ostwald from ADMISI who discussed the effects of what is happening in the breakdown of the already fragile relationship between the western world and Russia and, now more recently, between the EU and Russia.

 

 

 

 

[skyreach]

WHAT  --  Russian Sanctions causing Inflation?

If we have Inflation or not then that really depends primarily on the money supply. Particularly the M3. M3 is defined differently by the US and by the EU.

People incorrectly think that price increase or wage increase causes Inflation. These occur down the line in a chain of economic events, caused by the primary factor  -  the money supply.

The job of all central banks is to control money supply in order to maintain the purchasing power of the currency. They use rates to do so formerly but sometimes influence financial institutions to manipulate the currency as a way out for that occasion, or market forces does it itself.

For decades purchasing power has been whittled down. FACT. Interest rates have been controlled for a different purpose, like having deliberate very low interest rates to avoid a possible recession of the economy in difficulties. The rates were NOT really used for proper control of the money supply. The focus was else where. Huge debt build up over stresses the market and the economy, besides the bankers take advantage to use the "cheap" money for their vested interest instead of seeing that  viable operating levels is maintained by companies and governments.

Money supply governs Inflation or deflation, E.G. QE HYPER INFLATES the supply. They did it because (one key reason) due to a possible deflationary effects of too high a debt burden. Too much debts collapses the system at some point. If supply is greater than the production of goods and services (too much money chasing fewer goods) than inflation increases.

Hence QE, rather than the pandemic, primarily increased that huge money supply (QE being much much greater anyway). So bankers should have known and advised better than they have. Anyway that inflation will dig in at some point and the central bankers have failed to act early enough to control inflation, and particularly keep it in the 2% range (so was that a  arbitrary figure, or .... ?). Plus there is a lag in inflation / deflation taking place which they should be aware of, if they are bankers.

ALSO CENTRAL BANKS ARE USUALLY ALWAYS BEHIND THE MARKET IN CHANGING RATES. THEY DO NOT CONTROL THE RATES IN EFFECT. YET PEOPLE BELIEVE THAT THEY HAVE THE ALL SEEING 3RD EYE.

Russian sanctions are, like other other causes, secondary. So any economic hard times may be blamed on the pandemic or the Russian sanctions because it is a nice cop-out. That would be a major error in analysis by those who state it and time will show this, after the fact.

Western countries and others have been living well beyond their means by living on ever growing debts and not paying them off. They have been sold the idea that more debt can finance the Industry and economy to grow the GDP enough to handle the debt afterwards. But that never materialised at all. Yet they still keep peddling this false idea about.

And politicians great big promises to its voters, without that income in to budget its use.

There is always some economic problems coming up. Also the GDP CANNOT BE GROWN BY CONSTANT DEBT BUILD UP. This burden will collapse.

  Over many decades this problem has been repeated, the "solution" that never really solved it is used. Only market forces and a heavy tax burden has paid for all this excessive stress and burden, time after time, after time.

Failure after failure is rewarded with the "same old solutions being applied". It is a cosy system for those who set it up, but only for them, who control this system.

The market is too focused on each little external issues, gets greedy or over confident, over reacts, and misses the big picture. More importantly, whether it overly indebted , has enough for rainy days (as past incidences have shown), good constant and long term cash flows, and its value is greater than its liability overall.

RATES ALONE, EVEN WITH A GOOD CONTROL ON MONEY SUPPLY,  CANNOT HANDLE OR SOLVE AN ECONOMY'S PROBLEMS. INDIVIDUAL COMPANIES AND GOVERNMENTS AND BANKERS HAVE TO TAKE RESPONSIBILITY FOR THE FUNDAMENTALS OF RUNNING THEIR OWN BUSINESS , AND BALANCE THEIR BOOKS OR MAKE A PROFIT. GOVERNMENTS ARE LETHARGIC WHEN IT COMES INCOME SOURCES -- RARELY DO THEY GET INCOME FROM OTHER SOURCES THAN TAXES.

GOOD MACRO ECONOMICS DEPENDS ON THE SUM OF ALL WELL RUN BUSINESSES. BADLY RUN, EXCESSIVELY INDEBTED COMPANIES ( OFTEN ENCOURAGED BY BANKERS  -- GREED KNOWS NO LIMIT  ) AND THOSE TAKING EXCESSIVE RISKS ( LIKE FINANCIAL INSTITUTIONS ). ALSO, THE BAD EGGS IN CHARGE ARE RARELY PENALISED AND BARRED FOR DESTRUCTIVE PRACTICES.