The political discussion in expensive Germany is currently focused on the exploding energy prices, on heating bills at the end of the year, on expensive bread. Hardly anyone talks about the true destruction of wealth. That has to change immediately.
More than seven percent – that’s how high the return on investments has to be so that savers don’t slip into the red. However, a return of more than seven percent is just a dream for investors who do not want to be gamblers. Even if you earn a return of two percent on a government bond at some point, you are destroying five percent of your assets by buying it. It’s bottomless. And that does something to the general mood, including that in politics.
The political discussion is currently focused on energy prices, on the exploding fuel prices, on the heating bills to be expected at the end of the year, which could become financial time bombs. Also discussed are the drastic increases in consumer prices for tomatoes and bread.
The destruction of fixed assets is currently not being discussed at all, in the Bundestag it is only mentioned on the fringes of the debates. This is one of the major problems in mainstream society. And the role of the central banks is not discussed at all, although it is about time.
The European Central Bank acts as if inflation is a short-term phenomenon. About a ghost of the night that disappears as soon as the sun rises again. It’s not like that. Banks expect inflation to take hold, possibly for years.
The central bank is also acting as if the Ukraine war is to blame. Certainly – this war is exacerbating currency devaluation, grain prices are currently rising to astronomical heights. But inflation was there long before the war, and Corona and the broken supply chains are also making things worse because everything that needs to be shipped from China is becoming more expensive. The demand is high, the supply too small, the prices ride away.
However, it is the role of the European Central Bank to ensure monetary stability. But the ECB no longer does that. And central bank chief Christine Lagarde squirms from one press conference to the next, not wanting to hear anything about a sweeping turnaround in interest rates. There are reasons.
The zero interest rate policy, a constant thorn in people’s wallets, was a gift for every finance minister. It enabled him to take out cheap credit. One can even understand that the finance ministers in the EU show little or no interest in fighting inflation.
But then it shouldn’t come as a surprise that voters are no longer doing the Sunday speeches for politicians about mounting concerns about runaway inflation. Now it is noticeable what a loss the departure of the frustrated central bank boss Jens Weidmann means.
The German had tangled with then-Central Bank Governor Mario Draghi on every occasion, but Angela Merkel was more concerned about filling the post of Commission President with Germany’s Ursula von der Leyen than the Central Bank Governor’s post with German Jens Weidmann.
Weidmann opponent Draghi wanted to save the euro – “whatever it takes”. This “no matter what it costs” was a money printing machine that the ECB started through bond purchases. She has now spent more than 5000 billion on it. And ignores a simple truth: If you print money, you create inflation.
Christian Lindner as Federal Minister of Finance and his predecessor Olaf Scholz are and were beneficiaries of a European central bank policy that felt less and less committed to its purpose over time. Saving the euro became more important than fighting inflation. Individual calls to put pressure on the central bank were then always countered with the argument of a politically independent central bank.
Whether the central bank still acts independently is controversial. Easy money is like a drug. Once you become addicted, you need more and more of it. The head of the central bank feels little inclination to raise interest rates, if only because this would put the debtor countries under pressure.
You couldn’t get into debt that easily. And finally, the euro could come under pressure. Possibly even as strong as in the Greek crisis a good ten years ago. A scenario that the European establishment wants to prevent at all costs – “whatever it takes”. It is questionable, however, whether this line will be able to hold up under the growing pressure.
The message has now arrived in Berlin. Inflation, the destruction of money, was one of the most decisive issues in North Rhine-Westphalia. Which was unfortunately only noticed by politicians after the election. The SPD chairman Lars Klingbeil currently found remarkable words about it.
The Social Democrats had debated too much about the war issues and not enough about the reality of people’s lives, their increasing financial worries due to the devaluation of the currency. The social-democratic chancellor was – also in this debate – perceived as a discursive void. The SPD now wants to change that. But how?
No temporary fuel subsidy, no temporary nine-euro ticket, no minimum wage, no citizen income and no tax cuts for low earners will help against inflation of more than seven percent.
You can do anything, it also relieves the pain, but only that of certain groups, which will always be too small, and only for a certain time. Social policy is a repair shop, social prevention does not help against inflation.
Structurally, inflation is a wealth-destroying machine. It is as classless in practice as Marxism is in theory. One can even say: If you have less, you can lose less. Only: His daily life is still becoming more and more expensive.
It is high time to fundamentally debate currency devaluation. And the role of the European Central Bank belongs at the center of this discussion.
