How Speculators Cause Inflation

Inflation is created by those who run the Western world’s economies. No “natural causes” no circumstances, conditions, random happenings , cause inflation—even in the case of  natural scarcities: crop failures, shortages of materials or labor, or supply chain chain bottlenecks. There is no unseen hand that makes inflation; there is no supply and demand that causes it.  Inflation  is man-made.

The most relevant question is what nations do to control inflation. During the  Second World War., America suffered  scarcities in virtually all goods. But total inflation for the five years of war was only 25% while, for example, inflation for the 5 years of 1977-81 totaled over 50%. The difference was that in WWII the government enacted price control (the Maximum Price law) while in 1977-81 the Reagan Administration did nothing as the Federal Reserve Bank raised prime interest rates as high as 20.5% There were no scarcities, so why was there such  inflation? Supply and demand? Or actions of the Federal Reserve?

Is there a situation worse than  the government doing nothing to control inflation? That worse situation is when a government makes inflation happen. Yes, it can, and does, make inflation happen.

Europe is currently slapped with gross increases in natural gas prices,  approximately four times what they were (and are) for those entities that have long-term contracts with Gazprom, the Russian oil and gas producer.. Russia remains ready to deliver 55 billion cubic meters of natural gas to Europe to largely cover an expected 70 billion cubic meters short fall of gas in the European  Union. Russia has asked the EU for long term contracts that stabilize the cost of gas.

But the European Commission, a non-elected  regulatory institution within the European Union, had other ideas. Instead of allowing long term contracts with Gazprom, the Commission decided that gas be bought in the spot market (free market) especially the ICE (Intercontinental Exchange).  Created in 2000, ICE was financially backed by Goldman Sachs, Morgan Stanley, British Petroleum, Shell, Deutsche Bank and Societe General.

The speculators at the ICE and others, had a field day. Instead of stable prices being set in long term contracts, the “spot market” produced windfalls in speculative  profits. Now 27 nations of the EU are beset with a 300%  increase  in energy prices.

But the European Commission was  not through with their inflation making. The Russian company Gazprom together with European partners constructed two pipelines under the Baltic sea from Russia to Germany. The first pipeline is now complete and filled with gas, but the “paperwork has not been finished” to allow the gas to flow into Germany.

The second Russian Nordstream pipeline will be completed in December, which, combined with the first, will deliver 55 billion cubic meters of gas to Europe.  That is a huge amount of gas, equal to the yearly consumption of gas by Sweden, Finland, Switzerland, Ireland, Norway, Denmark, Austria, Hungary and Belgium combined. But not a cubic meter of that Russian Nordstream gas is flowing.

The energy crisis in Europe, especially Germany,  began two decades ago when Germany began replacing fossil fuel energy with windmills and solar panels. The problem was, they were shutting down coal plants faster than they were building wind and solar facilities, and to make matters worse were shutting down CO²-free nuclear plants. Germany, previously 30% nuclear, plans to close its last nuclear facility next year.

In the U.S. the Biden administration has blocked the Keystone pipeline from Canada, reduced drilling on Federal lands, and discouraged financial institutions from investing in petroleum supplies or coal. A new nuclear plant in the U.S. has not been built in decades.

Meanwhile leading financial  institutions, possibly including those that set up the ICE twenty years ago,  have declared their intention to reduce financing the oil and gas companies, who in turn are pledging to reduce exploration and drilling. Now pension funds and mutual funds have pledged to invest “green” and governments have legislated to enforce the pledges.

These measures will cause serious fuel shortages. The speculators will claim that some external force, as supply and demand, is creating the enormous price increases. As energy prices are driven up, virtually all prices must  rise. Energy is used by every one.

But there is more. To convert worldwide energy production to “green energy” will cost between $100 to $300 trillion, according to Yale professor and Nobel Economics Prize winner, William Nordhaus. To raise such astronomical sum he recommends a tax on carbon emissions of at least $100 per ton of CO² plus tariffs against goods coming from uncooperative nations who don’t obey Western carbon rules.

The burden on Western populations would be unimaginable. Already beset by falling standards of living, they would be further hurt with inflation and impossible new taxes.

But there is more.  Inflation isn’t directly caused by governments printing money, or reckless money creation by the central banks. Rather, money printing is a consequence of the creation of  a speculative bubble. In a merchant-banking economy, money is printed to keep the bubble liquid. In the U.S., in the 2008 financial crash and aftermath, the speculators received $29 trillion, cumulatively, to avoid a bankruptcy crash of the bubble.  Citibank alone received over $2 trillion.

Printing money, itself, does not necessarily lead to inflation. China has printed enormous sums of money but has only moderate inflation. This is because the expanding money supply promotes production of industrial, infrastructural and consumer goods, including housing (real value), rather than feeding a speculative bubble (paper value).

There is also speculation in China, but the government is able to haircut even the largest companies to eliminate their speculative excesses. Most importantly, the Chinese Central Bank is a government institution whose purpose is to foster economic growth. America’s Federal Reserve Bank is a private bank-owned institution whose purpose is to enable speculation.

For those of us in the West, I fear we are in for more inflation.

By Leif Johnson Via https://canadianpatriot.org/2021/11/05/how-speculators-cause-inflation/