The origin of inflation is dual. There is debt on one side and productivity on the other.
Inflation, debt and productivity
Everybody knows it. Printing money causes inflation, all other things being equal. A debt growing faster than the quantity of things produced inevitably ends up causing inflation.
But why do we get into so much debt, and in the first place the States? In all likelihood, governments compensate for low revenues. However, the latter depend on the productivity of the country.
It is therefore on the side of productivity that we must look to find the root of the problem. The newspaper The world worried about it last week. “In three years, hourly productivity – in other words, the wealth produced in the space of one hour of work – has fallen by 3.6%”.
And since the days always have 24 hours, this means that the total production decreases.
“This mystery of lost productivity”can we read, “constitutes a real break: over the decade 2000-2010, productivity increased in France by 0.85% per year on average, with a parenthesis during the 2008-2009 crisis”.
Economist Eric Heyer, who speaks of “mystery”, gravely recalls that “it is productivity gains that allow for growth and improve the standard of living”.
“If the decline in productivity is long-lasting, this induces less growth, less income, particularly within the company, and therefore less wages to redistribute”.
If wages don’t fall, which is usually the case, either layoffs or raise prices. Tada! Inflation.
The sacrosanct growth
This is how. The fundamental economic assumption is that you have to grow. Growth is absolutely essential to the fiat currency ponzi. For what ? Very good question.
The assumption of infinite GDP growth is in fact the direct consequence of the fiat monetary system. Indeed, every penny in circulation originally comes from a debt, without exception. However, who says debt says interest!
If the overall interest rate is, say, 5%, 5% more money will have to be created each year. It is an implacable mathematical logic.
Banks ensure this by lending more money each year than the previous year. And since most of the money in circulation comes from mortgages, the result is a real estate bubble. And let’s not talk about state debt…
Faced with the necessary increase in the quantity of money in circulation, the only way to avoid inflation is to produce more.
So that all economic models make these two assumptions:
- Labor Force Growth
- Productivity increase per asset
If we have more assets and/or more productive assets, on arrival production increases. It is then possible to hold the monetary ponzi while maintaining purchasing power. The latter may even increase. This was the case at the time of the glorious thirty.
What is the secret ingredient? Cheap energy!
Where does productivity come from? In classical economics, production is explained by the alliance of capital and labor. But as surprising as it may seem, the formal answer to this question does not exist.
As Jean-Marc Jancovici said on his page LinkedIn, “In economics, there is no mathematical equation allowing us to ‘produce’ productivity growth in a totally explicit (and totally endogenous) way from the factors of production: labor and capital”.
The fog clears, however, if one asks what capital is.
Capital
Capital is nothing but machines. Production directly depends on it.
Give a backhoe to a construction worker, he will dig faster than with a shovel and a pickaxe. Give him a truck and he’ll haul more stuff than a cart.
There is certainly a technological dimension to capital. Human genius is a source of productivity. But let’s not forget that the fruits of this genius are intimately linked to the energy available.
The backhoe and the truck run on oil. Ultimately, productivity is a function of the amount of energy we can extract from our planet. And above all oil, on which 95% of world transport depends.
Without growth in energy extraction, it is impossible to compensate for the increase in the fiat ponzi money supply. That’s when the problems start.
Here we are. After a century of tremendous growth thanks to the industrial revolution and the increasing extraction of fossil fuels, we are experiencing a downturn.
Things started to get complicated from the second oil shock of 1979, the year of the peak of oil consumption per human:
Then came in 2007 the peak of conventional oil (the one that is not expensive to get out of the ground). And since 2018, it seems that we have passed the all-oil peak.
Energy is becoming scarcer, more and more expensive and becoming a constraint for production. Even for advanced countries that have mastered nuclear fission. Unfortunately, everything is not settled with electrons.
A vicious circle ensues from all of this. The decline in productivity forces people to go into even more debt to repay old debts in a mad rush forward. Until hyperinflation.
Faced with physical limits to growth, more and more people will seek to protect their savings. And many are those who will turn to Bitcoin. Its liquidity and its absolute rarity (unique in the world) make it the universal store of value par excellence.
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