Inflation over the last hundred years in the USA.


The purpose of this paper is to summarize the price increases over the last hundred years in the USA and to look for commonalities with what is happening today.

Let’s start with the two prices that really matter, food and energy.

For food, I take the price of wheat (Kansas) over the last hundred years and for energy, the price of a barrel of oil at Cushing (WTI).

This is the result.

Since January 1923, the price of wheat has been multiplied by 7 and the price of oil by 47.

Having the two prices over a century, I can construct a price index that would be 50% energy and 50% food at any time, and it is this index that appears at the bottom, in black.

I will call it the IDL index of the cost of (sur)living in the USA.

From which it appears that, in a century, the value of the dollar has fallen by 97% in terms of wheat and energy.

First question: how does this index behave compared to the official price index in the USA?

Here is the answer.

  • As the reader can see, from 1923 to 1972, halfway through the period, the two indexes followed each other.
  • Since the link between the dollar and gold was broken by Nixon in August 1971, the rise in prices has accelerated structurally and almost all of the decline in the value of the purchasing power of the dollar has taken place for the past fifty years.
  • Historically, we have had three major inflationary periods: World War II, the 1970s, and the years 2003 to 2012.
  • The thousand-franc question is: are we entering a new inflationary period? And my answer is: probably, yes, since the real rates are still negative in the USA and in Europe.
  • As the reader can see from the second graph, during these three periods, the real interest rates (net of price increases) on 3-month Treasury bills were negative (green hatching on the graph).
  • from which I conclude that every time the central bank wanted that the rise in prices, that is to say the fall in the value of the currency fires.

And I have to say that I find it hard to understand here since each period of rising inflation, which always follows a period of negative real rates, has been a miserable period for the US economy.

First, labor productivity declines, and with it, the standard of living of the poorest.

As I have explained ten times in these newsletters, interest rates that are too low encourage financial speculation to the detriment of productive investment.

the capital stock no longer increases while the price existing assets rises, the counterpart being an increase in debt, which tends to make the system increasingly fragile.

And as labor productivity falls, since the stock of capital no longer increases, prices rise…and the standard of living of the poorest falls even more…

And as prices go up, price multiples go down, and the rich get poorer in turn (with a delay).

And so, it’s better to have gold than financial assets and that’s what my last graph shows.

Having long fixed rate bonds when the central bank maintains negative real rates” is more than a crime, it is a fault »

And I’m furious.

Because what the central bank tells me is that I must bury my talent by buying gold, silver, works of art, land in the USA and Australia, real estate in HK because the goal of the authorities is to steal my money if I have earned it by taking entrepreneurial risks.

Indeed, if I have invested my four cents in a risky business, then I will lose when the inflationary crisis will raise interest rates to 10% or 20%, my business going bankrupt, and I will lose again if I win money in spite of everything because it will be confiscated from me by state social legislation which will continue to ruin me.

And what annoys me the most is of course that this policy is carried out in the name of liberalism, which amounts to saying that Saint Barthélemy was carried out in the name of Christ.

CONCLUSION

Once again, I do not understand why Keynesian policies which have always failed everywhere and continue to be followed in OECD countries, in particular. After all, everyone knows that inflation always impoverishes the Nation.

Certainly, certainly, but inflation allows incredible transfers of wealth from entrepreneurs to the state and its staff. without anyone having to vote.

The only explanation that I can find is therefore that these policies allow the administrative elites who have ruled us for ages to liquidate small and medium-sized entrepreneurs for their own benefit, for the benefit of an economy where arrangements between cronies reign supreme. and rascals.

Basically, our elites are doing what bankruptcy trustees operating in commercial courts have been doing in France for ages.

Our elites are scavengers.

o We see it with the myth of atmospheric warming, false investments needing zero rates to remunerate the cronies.

o We have seen it, oh how many, with EDF, Alsthom, Areva…

o We see it with the Covid, where the states need zero rates to be able to pay for vaccines which are useless by putting the states in debt and to lock everyone up to establish their powers by continuing to pay us to do nothing.

o We see it with the war in Ukraine, where tens of billions are paid rubbish on the fingernail to arms companies, at home, which supply arms to Ukraine while the debt appears in our budget deficits because this money will never be reimbursed by Ukraine to anyone and certainly not to the countries that sold arms.

o Behind each widening of the budget deficit, there are always large groups a little too close to the political powers, in my opinion in any case.

Basically, I tell myself that the only rational explanation that can explain why Keynesian policies continue to be applied today is that this kind of policy has always allowed a criminal class, if it came to power, to plunder without any shame the resources and assets of the countries that these elites have been given charge of. And so, I think the price rise in the US will continue to rise since after all, the leaders of the wreckage raiders reside there.

In summary, I continue to invest everywhere, except in countries ruled by Keynesians.

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