The text here is meant for a podcast that i am working on. The podcast about banking systems, monetary systems, economic systems, monetary innovation and reform and my excellent monetary system and the economic systems belonging to it. The part about inflation is the most important for this. I think i will change still a bit in this text before i will record my podcast but the understandings in this text are i think clear enough for understanding that inflation works completely different from what economics and general public think. Also the year 2025 and or years after will give a major /big worldwide economic recession caused by inflation and other causes and this recession can be prevented to more or less extends or completely with the understandings written in this text. I already send this text also to the Dutch central bank and ministry of finance. And will send it to many more organizations and people very soon.
© W.T.M. Berendsen, Lichtenvoorde, 24 September 2024
This episode of my podcast is about the major misconception of economists and the general public about economies. It is about inflation. Inflation is misunderstood largely and foremost also because of that, the relatively simple ways to prevent problematic inflation are also not understood enough. In this podcast I will give my understandings about inflation and the real causes of inflation, but also I will mention how problematic inflation can always be prevented by means of the right actions by governments mainly
So here I gonne talk about inflation. When inflation occurs it is either cost related or non cost related inflation. Inflation occurs all of the time. But when inflation gets problematic it mostly does not even get problematic because of the inflation itself but because of the fact that lower income groups need more income to cope with the inflation together with the fact that higher incomes for the lower income groups are costs for companies and other organizations and therefore lead to even more costs leading to more price rises so more inflation. Therefore the mere fact that lower incomes cannot be raised without a needed price raise is the biggest problem of inflation. If only there would be ways where lower income could be raised without the costs for companies and or other organizations to rise, then this would mean that the prices would also not have to rise. And higher income for the lower income groups connected with no price rises for companies and other organizations per definition leads to more turnover so higher profits for companies. Higher incomes for lower income groups also lead to higher tax incomes for the governments.
Now 2024 the Dutch government wants to decrease income tax for lower incomes. This will mean that the lower incomes will have more money to spend but the costs for companies and or other organizations will not rise. It will mean probably that the lower income groups will spend more or get less debts and later on can and will spend more. So all together it will mean more tax income for the government. This tax income for the government may even be more than the reduction in tax income that they give lower incomes by means of lower income taxes.
In the rest of this episode of the EMS podcast, I will try to explain well enough what is wrong with current misunderstandings about inflation. In the core, this misunderstandings are caused by the fact that economic theories and economic thinking is mostly dualistic. There has to be a shift from dualistic misunderstandings towards relational understandings about inflation. Relational inflation is different from fractional dualistic theories and misunderstandings about inflation. Also it has to become understood that our world is not a world of uniformities but of differences and that those differences matter a lot. Some years back I was at ministry of economics of the Netherlands and economist there talked about inflation and gave the example of Zimbabwe. But of course Zimbabwe is in many ways much different from the situations and economies in Western Europe and full grown capitalist societies with the right financial institutions and governmental and banking policies that are by far not optimal but at least much more developed and contra inflation than the very poor situation and circumstances in Zimbabwe.
Another huge mistake of economic theories and economist thinking is that in many cases they like to work with ceteris paribus cases while of course real economies are never ever ceteris paribus. Also there is a huge lack in detailed insights about inflation of specific goods or services or real estate. The economists do not diversify enough in how problematic inflation of specific goods and services are for the lower income groups. They fail to understand enough the relational inflation and they fail to take enough into regards the causes of inflation for different goods or services or real estate and how to deal with that and that in many cases especially based on a thorough understanding very efficient and proper governmental policies can mostly help a lot to manage problematic inflation.
According to Milton Friedman inflation always has a monetary cause. The economists like to mention mostly that more or too much money ALWAYS leads to inflation and this is actually a result mostly of the work of Milton Friedman. But Milton Friedman was wrong. And his wrong prediction and misbeliefs are firmly grounded in the ways of thinking of economists and central banks and governments. That is one of the biggest reasons why the great predictions of John Maynard Keynes in his “economic possibilities for our grandchildren” are not realized yet. Economists are not the persons who can create the proper monetary and economic systems to realize the predictions from John Maynard Keynes. Even JM Keynes himself did not understand what was really needed to enable his predictions in his writing “economic possibilities” to become true. The only person who does and ever did is me. Now economists need to get to understand and realize my monetary system and the economic systems belonging to it. This is not only highly needed to realize the predictions in “economic possibilities for our grandchildren” but also to prevent maybe still the recession that worldwide economies will face soon after 2024 if my monetary system and the economic systems belonging to it are not realized soon after 2024. As then for sure a worldwide recession will occur. There is no other possibility given the damages of current monetary system and economic systems for worldwide economies and citizens. And the logic of inflation leads to a worse economy if not enough money growth occurs after a relatively huge worldwide inflation like in the years of 2022 and 2023
The Fisher equation is a main part of the quantity theory of money. This equation is MV=PT where M is the money supply, V is velocity of circulation, P is price level and T is transactions. When there is inflation, economists do not want more money into the economies as it would cause even more inflation. But actually when there is inflation, the P in the Fischer equation rises and if the same T transactions would have to take part, then the M should at least increase with the same level as the inflation if all the other parts of the equation would stay the same. But actually they do not. As the V will also decrease based on or following inflation. And if the V for certain goods will NOT decrease after inflation, then with the same or not enough growing money supply, the V will most probably even decrease a lot more even for other goods and services. And velocity of circulation and transactions are closely linked to each other. Meaning that with inflation both V and T will decrease. If velocity of money and transactions will not decrease given a major price increase like in 2021 and 2022, it means that either M is growing or people are spending more of money they saved earlier
The Fischer equation M* v = p * t defines M as money in our economies. But what is forgotten there is that M money in our economies also involves savings. And those savings should not be part of the fisher equation. Therefore i propose to replace M money in our economies with Ms being money spend.
Then the equation will become Ms * v = P * T. Money spent times velocity = price times (goods and services). Then the P*T part should be diversified and detailed much more than in the fisher equation. Based on what types of goods or services but also whether it is about new products or services or second hand goods or services. The money spend and velocity of money also is determined a lot by trust in our economies and future developments and changes therein.
The Fisher Equation MV = PT does also not take into regard the need for growth of transactions with population growth and growth of possibilities for humans and a major factor of current economies namely global economies. The need of more money because of that are not taken into regards. There are a lot of current -ations that are neglected with the Fisher Equation. I talk there about at least -ations like globalization, population, industrialization, innovation. T needs to and will change constantly and the real economy is much more diverse and sophisticated than the narrow minded and reductionist and wrong fisher equation. This fisher equation is not complete and it is not diversified enough.
The M in the Fischer Equation should also be understood as being/incorporating only money spend in the economy. While the money that would be created by and going into the economies is much more than that or should be more than that. Meaning that the needed increase in M for the Fischer Equation can only be generated if there would be created even MORE money than the needed increase in M in the Fischer Equation. It should be understood that in present economies, Central Banks and Governments NEVER create additional money. It are the private banks who do so, following a request and loan of more money by citizens or companies. How much those citizens and companies will actually borrow mostly depends on how much they can borrow and foremost also on trust. Trust in the economy and trust in whether they can pay the money back and maybe also whether they can earn the borrowed money back and maybe make a profit out of the loan.
The creation of money by private banks is NEVER initiated by the banks themselves, but always by the citizens and companies borrowing (more) money. This means that the rhetoric of economists that more money into our economies causes inflation would then mean that if and when citizens and companies borrow more money that then this would mean inflation. Of course, this is far too simple but also it is factually totally incorrect. In current economies, citizens and companies borrowing (more) money is itself not a reason for inflation. Or it does not have to be. When citizens can borrow more money to buy a house and more citizens can borrow for a house, the price of houses MAY also increase. But it also may not. And there can and will be much more reasons why the house prices may or may not rise, and a rise in house prices is mostly not a result of citizens being able to borrow more money and more citizens being able to borrow money for a house. This may be partly a reason for increase of housing prices or it may not be, and if it is a reason then governmental policies can always restrict those kinds of influences with the right governmental policies. Excess house prices or house prices above certain amounts can be highly or smartly taxed on either the buyer and or the seller sides. Another thing that governments could do to prevent excessive housing prices is by announcing that for instance they would only accept house prices to rise maximum a certain percentage a year and that any higher sales prices of houses would be taxed more than the surplus.
The false acritically indubitable belief system of economists around inflation is all based on the false assumption that more money would go into the economies and that that more money into the economies would then be the driver of inflation. While in reality it is not increases in the amount of money that drives inflation in our current western and capitalist societies. In these economies, the only money that is created is not real additional money creation but debt created by private banks. And the only reason why these additional debts or debts in general are created, is because citizens or companies NEED more money, or at least want more money. They want or need that additional money to buy certain goods and services or to make needed or wanted investments and in general whenever citizens and or companies can borrow money, they will do so to finance what they need or want to buy or invest in.
Contrary to the misbeliefs of economists, in western or capitalist societies inflation does NOT occur because of more money into our economies. It might occur because of changes in where money gets allocated towards or it might occur because of our current economic systems and cost rises of companies. These cost rises in general do not lead to the same wage increases. So in general, inflation leads to a less good financial position for the workers and citizens concerned.
Inflation should not and can not be understood on a macro level using inflation theories that are largely reductionist and factually not true. Inflation has to be understood taking all the real issues and circumstances of real life economics and situations into regard. And most of all by taking that into regards together with how people can and will or might respond to that and by understanding that people and situations are still differentiated there, leading to a multitude of real factual actions. But by understanding just solely what I explain in this podcast, it should be really clear that more money into the economies leading to more demand and therefore leading to inflation either because of the more money in our economies or because of more demand or because of a combination of the both is at least in most cases and situations of current Western economic capitalism and economies just not true.
I am pretty sure there is no single CEO or company strategist or marketing guy who ever looks how much money is in our economies or how much is added or who even would know how to do this. In most cases these people can and will not even understand how they could get a good valid insight into this. Also i think none of these or any other company people will consider rising prices when demand rockets. I further more think it is kind of insane to research this in the light of economics or social sciences just for the aim to prove Just that. As it should be obvious this being the real True realities in current economies. Still all economists preach otherwise when they are blinded by their theories.
So in our real economies and societies, more money does not lead to inflation. But also more money is actually really needed following inflation. It has to, and not more money into economies after inflation is actually largely damaging and the main cause of about all the current huge problems in our current economies and financial societies. After inflation, MORE money and sometimes MUCH more money is needed to ensure that employees still spend enough and have enough to spend and buy but also this additional money is needed to compensate for the effects of inflation.
Inflation like it occurred on a large scale in the years of 2022 and 2023 is actually a result of not enough money in our economies. There was and is not enough money for certain parties in our economies. This was already clear in the corona periods. At that time there were many companies that could not cope well enough with less income and after the corona crisis a lot of companies still had to pay back loans they needed to cope with the corona situations and period. After that the energy prices rocketed while many companies did not have enough financial resources to handle these price increases. Therefore the only solution for most companies was to increase their prices. Inflation. If most of the companies would have had enough financial reserves, these price increases would definitely not have happened so massively as in the years of 2022 and 2023. This massive inflation on world economy scales can not be understood apart from the corona crisis and the very poor financial situation of many or most companies. Now the companies can deal again with the current costs, but the question is for how long given that it will not last long till a next severe worldwide recession will be there.
The inflation of 2022 and beyond was mainly caused by higher energy prizes. Those higher energy prices where mainly a result of many changes in the energy markets. Demands of energy growing because of the energy transition and more changes caused that the energy sellers and producers did need actually a lot more money than what was available in this particular sector. This means also that now the more money is levelled to this particular sectors in our economies and through almost every other goods and services in our economies, that there is actually less money (not more) available for those other goods and services. Following inflation, MORE money NEEDS to go into the economies to enable citizens to still buy enough of what they want or need to buy. Without additional money in economies after inflation, less products and services are bought and the velocity of money decreases. Both of these cause a recession.
The slow down in our economies will get apparant in the years after 2024 by means of a severe economic recession. As the growth of money can, like before, is not enough to cope with the inflation and needed additional money of the years before and current and future demands of MORE money. Therefore, additional money is always needed in the economy after inflation.
The only way of more money to go into the economies with the current monetary system and economic systems, is through more borrowing possibilities of citizens. For that, it is needed that the income of these citizens increases. Without it, not more but less money will be borrowed. Following inflation the wages of citizens should at least increase as much as the inflation. This does and can not happen because of the current economic systems, meaning that the high inflation of the years of 2022 to 2024 by definition could not result in ENOUGH of more money going into the economies. Meaning that by definition there will be a recession after 2024 sooner or late
With current monetary system and economic systems in capitalist societies and countries, it is impossible that real additional money gets into the economies. With my Excellent Monetary System and the specific economic systems that result from and belong to it, real additional money can and will get into economies. That money will, contrary to what about all or all economists belief, not result in problematic inflation. The more money will instead lead to LESS debts. Less citizen debts, less company debts and less governmental debts. Less money will be borrowed from the private banks, which means that the traditional way of debt creation is replaced by financing by and through the money that citizens and companies and governments have or get themselves.
More money in our economies is actually constantly needed because of inflation but also because of the growth of inhabitants of countries and our globe. And these inhabitants want always more goods and services and foremost also better-quality goods and services. Then also change like sustainability requires a lot of additional activities so additional money to finance these needed additional activities. Innovation and change require a lot more additional money in our economies. When additional money really goes into our economies and this additional money is not needed for consequences of inflation or for financing currently needed goods and services, it will mean that that money can and will be spend on innovation but also on growth of new products and services and investments inland and abroad.
More money in the economies will not lead to people buying more or other goods and services. This because of the fact that only when people themselves get higher wages and or higher incomes, or based on peoples own decisions not connected with more money overall in economies, they might get to buy more goods and services than they did before. The incomes and wages of people do not increase ( a lot) when indeed more money gets into the economies. When more money gets into the economies, it Favors the rich and the companies mostly. This more money into economies ends up as being invested or saved up mostly. Anyways it will not, or will only to a very small extend, lead to more demand. And if it will, then no single company will itself know or see the connection of more demand and the rise of money in economies. Actually no single company generally knows when or whether there is a growth of money in our economies. Companies do not rise their sales prices because of more money in economies. That belief in economics is nonsense. Companies might rise their prices because of cost inflation or because of other cost rises or other reasons, but a growth of money in our economies in general is not and will not be a reasons for a sale price increase.
After inflation but also to even prevent inflation, more money should go into our real economies. This additional money needs to enter our economies without leading to cost inflation. And that is only possible by means of my innovation for the money system and my excellent monetary system. At first by means of income tax compensation. If this is not possible, compensation of other taxes or via TOESLAGEN is also possible. All this ways of adding money to our economies lead to additional money for workers or citizens or additional money for companies and other organizations. Those all lead to additional borrowing possibilities or additional spending possibilities for citizens and companies
Inflation causes the need of more money in the society but central banks fail to create additional real money and therefore the needed additional money has to be borrowed by citizens and companies. But citizens and companies right now lack the means and possibilities to borrow enough additional money to meet the additional money requirements caused by inflation in the years before 2024. What we miss there is the proper right additional banking system for governments that ensures creation of real additional debt free money. Inflation is not caused by more money into the economies but inflation actually is caused by the lack of the right proper banking system for the government and the resulting too high tax burdens on people and businesses and too less of money growth. Because of the lack of a logical good government banking system all of the governmental spendings need to be paid by people and businesses. Higher prices for goods and services on a huge scale (everywhere in our global economies) requires a lot more money in our real economies for enabling the same amount of goods and services or even more to be bought. This money is completely or partly created in the people and businesses banking system but should have been already created in the government banking system to prevent the huge constantly growing problems and issues in our economies because of the lack of a proper governmental banking system. The right proper banking system is not there yet because of the huge misunderstandings and insanities in current monetary theories and economics especially or solely regarding the phenomenon of inflation.
Inflation is caused by taxation. And inflation requires even more money in the economies to pay for same amounts of goods and services. And growth of people in economies countries but also globalization asks/demands/requires even MORE money into the economies. If that money will not be created or made available anyhow then the economies can not grow enough and people need to buy less and or to borrow money
If more money is needed the people and the businesses will borrow this additional money. But only if they can do so still enough. The amount of money in our economies is generally not that much monetary driven but mostly it is people and businesses driven and if more money is needed than available and required then the people and businesses will generally borrow the more money needed or required. But currently people and businesses are not able to borrow enough additional money.
It is the spending of governments and the current lack of an additional good banking system for the governments and influence of that on economic systems and processes that is the main huge problem in current economies. Our society needs my addition for the monetary system which is at least in beginning mainly an additional banking system for the governments. This change in the monetary system is needed before our economic realities will become a huge disaster because of the current insane monetary and economic systems
There is a difference between the total amount of money in the economy and wages of employees but both really must rise after inflation and it all is connected with and dependent on each other. The total amount of money in the real economy must rise after and because of inflation, but the profits of companies go to the financial economy. The most common or maybe even the sole way that money goes from financial economy to the real economy is by borrowing money from financial economy to the citizens and companies in the real economies. But with the current insane monetary and economic systems, those who need to borrow need to be able to borrow enough still to ensure that the economies can still develop. And as they do generally not have that anymore now, a recession after 2024 is a sure fact.
Now Dutch government wants to save money so less spending and because of inflation everything is more expensive. Less expenditures of government and less borrowing from companies and less expenditures and borrowing by citizens means less money spent and less money available to spend and for investments in the real economy. So that means a major slowing down of the economy ..i think the same will go on in EU and the US and worldwide the next couple of years ..recession
How to prevent inflation?
Our society is much more intelligent than our current monetary system and our current economists. Inflation is now prevented mostly because of a lot of phenomena and developments in society and economies that where added or that are not applicable anymore. We have now laws and globalisation and norms and wealth and a financial economy and understandings and partly resulting from that also precautions of different kinds that prevent problematic inflation to take place. And even some of these can and will prevent inflation to take place and by means of understanding the role of each of them and or the right combination of them, serious problematic inflation can ALWAYS be prevented.
Cost inflation can be prevented to reduce the costs or by compensation of the cost rises when needed. Then if that is all done correctly, inflation is financially wise not needed anymore as price rises will then not be needed anymore. Maybe slight price rises will then still be needed but not really problematic ones on a huge scale. The worldwide inflation of previous years (2022/2023) where mostly the result of rises in energy prices. Causing a rather huge inflation on a very big scale. This is really exceptional and could have also been largely prevented with my excellent monetary system.
Price rises that are leading to problematic situations can easily be prevented and solved by government once my excellent monetary system is realized. Cost inflation can be solved by reducing costs or by compensation of too high cost rises. And all other price rises that are not really needed financially wise can be solved with governmental policies. The government can always tax any business that raises prices too much or punish them in other ways financially wise. In that case the taxation is not for prevention of inflation by getting more money out of the economy. But instead it is taxation of companies or other organizations that rise their prices too much while this is not needed financially wise. The context is different as the whole context changes with the excellent monetary system.
MMT is preaching that additional spendings into the economy by governments lead to additional tax income for the government and that debts are therefore not a real problem. This all with the current monetary system and the current economic system. With this current monetary system and economic systems still the same, MMT wants that governments spend more money as that would stimulate the economies and lead to additional tax income. But if problematic inflation is going to happen then the MMT ers want more money to be extracted out of the economies by means of taxations. They do not specify what kind of taxation. Based on the assumption that inflation is caused by too much money in the economies, and taxation would be a way to prevent further inflation or solve it by getting money OUT of the economies. These assumptions are of course all not true and also weird assumptions. Too much money into the economies lead to inflation. Then they assume that companies rise their prices when more money gets into the economies. That these companies know that there is going more money into the economies, And then that solely based on this more money into economies the companies rise their prices. And that taxation leads to less money into economies. How does taxation lead to less money into economies? Taxation of WHAT
Actually the inflation is caused by too much taxation and too high governmental costs and NOT because of too much money in the economies. Taxing if inflation gets too high with the aims of reducing the amount of money in our economies will NOT lower or solve the inflation but actually cause even more inflation. More money into the economies does NOT cause inflation but actually will prevent it. Just like more money into the economies will prevent a recession in the years after 2024.
Taxation can actually help to solve specific problematic inflation, but not because this inflation takes money out of the economies. Taxation the way MMT wants it and for taking money out of the economies is not a way to fight or solve inflation, it will only make the inflation worse. This because of the fact that inflation is not caused because of more money in our economies but also the higher tax costs for workers or companies will lead to demands for higher wages and higher costs for companies. Creating more incentives or the need for higher prices and thus inflation.
My excellent monetary system leads to more money into economies but that does not lead to problematic inflation. What might lead to problematic inflation is if companies regardless of how much money is in economies do increase their prices too much. More or much more than is needed financially wise. If companies do so too much and this is leading to a risk of inflation, then governments could or can tax those companies in such ways that these governmental policies lead to less increase of prices. The taxation is then a governmental policy or a punishment for companies that increase their prices too much while this is financially wise not really needed. It is a way of price regulation that can prevent problematic inflation, problematic price rises.
My taxation solution is only for a specific situation and aimed towards a totally other specific group with a very specific goal being to discourage price increases purely to make more profit, price increases which are totally unnecessarily financially wise. The goal is therefore not to get more money out of the economy and the money received by the governments through the taxation which is propose here can actually better be spend immediately into the economies in right ways by the governments. Even more money than the money received by the taxation can be spend additionally into the economies again by the government if only it is not going to the right directions into our economies. Allocating this money to the lower income groups will have a very positive impact on our economies.
Where does money of taxation go. Government spending in current system with current economics system and dependencies go to the companies and wealthy workers. So MMT wants more to go there. Leading to even bigger iimbalances and problems for our economies.
My monetary system and Policies accept imbalances but only the healthy non problematic ones. My system by changing the economic system and dependencies solves monetary problems and economic societal problems and issues. Inflation not being unhealthy anymore. Current imbalances are very unhealthy because of higher imbalances/inflation ending up with the rich and wealthy mostly at cost of the lower income workers
Economists are convinced that more money into our economies lead to inflation. This is NOT true. At the same time, higher incomes for lower wage workers can not easily be generated in companies where cost prices and profits together make up sales prices. The reason why such higher incomes can not easily be generated is because this incomes are expenditures for the companies and will raise the costs. Meaning that if higher incomes are affected on larger scales, it means that this companies have either to be satisfied with lower profits or they will need to increase their prices or sales to generate more income for the companies. So in those cases even while the companies do not really want to increase their prices, they will have too
It is not that more money into the economies lead to inflation. Companies might want to increase their prices if they know it will be possible in the economies or accepted. Even if it is just to ensure that when (expected) wage rises are obligatory for whatever reasons, the companies will still make enough profit. This is basically what happened with a lot of companies probably during the years of 2022 to 2024. There was an inflation NOT caused by more money into our economies. Based on that the companies had to raise their prices but because it was somewhat more accepted to raise prices because of the cost rises of energy, most companies raised their prices but some probably raised their prices even more because they expected a demanded wage increase because of the inflation.
Inflation can be cost driven or not cost driven or any combination of the both. Non cost driven inflation is at least consisting of demand driven inflation and greed driven inflation. The causes and connections between types of inflation need to be get understood both much different and more detailed than it is now understood by economist, the general public and governments. This is needed to be able to take the most optimal steps when inflation does occur, but also it helps to understand my monetary system and the great role it plays for other, much better contextual results of the inflation phenomenon and occurences
Very important to notice in the case of inflation is that inflation occurs almost constantly and that this inflation gets actually more and more troublesome for the lower income groups. This because their wages normally increase less than the inflation while higher incomes normally rise more. The higher income groups mostly profit the most from inflation, inflation has a de-levelling effect on income. This means also that the less the lower incomes get to spend, the less money enters the economies. While in general more is needed following inflation.
Economists think there are two types of inflation and that this two types would be cost inflation and spending inflation. Or cost inflation and demand inflation. Or they mention monetary inflation, cost inflation and spending inflation.
The biggest problem in these times is inequality inflation. This inequality inflation is caused by the fact that economists very wrongly preach that more money into our economies leads to inflation. This coupled with the current economic system leads companies and governments and of course the narrow minded economists through their narrow minded economic theories and professionalisms think that lower wages may not and can not be increased too much and also foremost that lower incomes and wages can not increased too much because this will lead to (more) cost inflation. The result is that lower income groups get less and less real nominal income to spend opposed to the real price increases each year. Cumulatively this leads to increase of inequalities, but also to real money increases into our society becoming more and more troublesome. The real money increases into our society are ecosystem illogically created through private banking. And the needed money is created as much as possible through those ways driven by what people, citizens, really NEED for spending what they need or want to spend. There is of course a huge discrepancy between what people individually and as a family or group NEED to spend and what they do not need but still WANT to spend. Quite often even the lower income groups still spend if they WANT to spend even if they do not really NEED to spend it, and the question is whether they can then still really AFFORD to spend this amounts of money. If not they need to borrow, and cumulatively this needs to borrow together with the investment borrowings of companies and the borrowings of governments through the PRIVATE banking system leads to the real money additional money creation in our economies. Which is NOT real money creation, but actually it is cumulative DEBT creation. The real additional money creation being cumulatively equal to the cumulative additional DEBT creation, together equaling to ZERO real additional money creation.
The real problem and becoming the most huge problem in current society, is that this insane economic ecosystem of current times together with the insane monetary system of current times lead to inequality inflation where lower income groups especially get stuck with buying houses as THAT is where the real inflation occurs. NOT because of more money into our economies, but because of the fact that our current BANKING system is insanely and unneededly discriminating the lower income groups for creating more debts in the form of mortgages there, while the higher income groups can continue doing so with ever growing purchasing and INVESTMENT power. An ever growing part of the housing market is becoming INVESTMENT oriented and induced, while housing should be mainly or solely only be LIVING and non investment oriented. Lower income groups NEED houses and they NEED a place to live, but the COSTS of those are more and more based on INVESTMENTS and the abilities and requirements of OTHER groups there. The costs of living go up also mostly because people NEED a place to live and even though they do not really have the opportunities and money to really Pay for what they NEED there, they still NEED to pay these amounts even if they actually more and more difficulty can not.
That what is happening now in the worldwide economies is a result of too LESS money in our economies. Too less money and also money allocated in wrong and damaging ways. Because of too less money in our economies, in the years of 2022 and 2023 companies had to increase their prices following a price increase of mainly electricity. If there had been enough money in our economies, much less price increases would have been the result and much less inflation caused by these price increases. Now, in the year 2024, at least in the Netherlands the wages have been increased also but not as much as the inflation has been. Companies hire less persons and also therefore the money spent in the real economies will be less in the year 2024 and after. The year of 2025 will become even worse....there will be a recession resulting from too less money in our economies and the inflation that this caused but also because the inflation requires even more money into our economies. And the sole way money is entering our economies is through lending at private banks and spending that money into the economies. That is what companies and citizens normally need to do but both have less borrowing power than before and will not borrow as much as before.
We have a housing crisis now. In 2008 there was the financial crisis where there was a big problem with mortgages and houses because some people could not pay their mortgages anymore and needed to sell their houses. Now in current times a lot of the people who could still get a house in 2008 can not even get a house anymore. Socially wise the crisis is much bigger and much worse and with much more impact and problems than the financial crisis of 2008. But it is not perceived as troublesome as the crisis of 2008 because the governments and economies and also the banks are not really feeling or experiencing yet the problems connected with the huge housing crisis of current times
Types and causes of inflation
© W.T.M Berendsen, Lichtenvoorde, December 2024
More inflation or inflation causes more money in our economies. Because of inflation citizens and companies need to borrow more money from the private banks and that results in more money in our economies. Inflation is not caused by more money in our economies but it is caused by cost price calculations and workers wanting and or needing more and more income
The money created by private banks by means of mortgages and other lendings is never ever enough to prevent further inflation. If the money created by private banks would be enough then companies and other organizations would have enough margin and then they would not have to increase their prices even more. But because of the fact that the amount of money added is always just or a lot too less, companies and organizations can not fully deal with cost rises without increasing their sales prices.
What is now happening in our society because of the insane money system coupled with our insane economic systems can be called a very negative positive feedback loop. It is a process of ever rising prices and higher wage costs and higher other costs and for all of that together with the growth of citizens and products and services, more money is needed. Actually, more money is needed for that and also more money is needed to prevent companies having to increase their prices. Current society is as such that a considerable increase in money in our societies is very highly needed and this will solve problematic inflation and make the life of everyone on this globe a lot easier and better.
Inflation is mostly most problematic for essential primary goods and services. Primary needs for citizens and families like food and drinks, clothing, internet and mobile phone, sports, education, insurances, transport (bicycle, public transport, a car), healthcare and care, going out and housing. Housing and food and clothing should all be affordable for really everybody and a lot of risks of life should be insured standard by governments.
There are generally 3 sorts or types of inflation, being
- Cost inflation
- Reitteration inflation
- Expenditure inflation
When looking at the sorts or types of inflation, it is important to get to understand that expenditure inflation (more money spend on certain goods) is mostly for more luxurious goods or more special goods that are already produced but sold again by mostly private persons. In about all cases, expenditure inflation is not for Maslow primary needs. And spenders connected with the expenditure inflation are generally not getting into financial problems by spending more on the goods or services concerned.
Expenditure inflation generally only occurs when people themselves want to spend more on certain goods or services and these goods or services generally do not belong to essential primary goods or services. The individuals or families spending more on these kinds of non essential goods can easily miss the money they spend on these. Expenditure inflation is not a problematic kind of inflation.
Cost inflation is mostly much more troublesome for various reasons. Cost inflation is mostly for maslow primary needs and in current times also for houses and living. Both of these together cause the most huge problem for citizens in capitalist societies. But cost inflation is strongly connected with the current monetary and economic systems and besides that even those resulting costs inflations can mostly be prevented more than enough by means of governmental policies.
Cost inflation, the only really troublesome inflation in current times, can be prevented by
- More money in our societies and allocation of that money to the right places
- Governmental policies
For more money in our societies and allocation of that money to the right places, the correct monetary system and economic systems are needed. This requires a very specific other monetary system and very specific other economic systems. Only the right ones are possible and helping, and this are my monetary system and the economic systems belonging to it. Therefore besides governmental policies what is needed to prevent problematic inflation is
- My excellent monetary system
- The economic system belonging to it
- The monetary policies and actions that i mention to be important guiding and resulting from implementation of my excellent monetary system.
Reitteration inflation is inflation caused by previous cost inflation. Because of cost inflation the wages of workers increase and because of that and too less margin to compensate for the wage increases, more price rises so inflation result out of it. This can result in an ever repeating process of cost price increases and resulting sales price increases. Reitteration inflation is generally also mostly the biggest problem for critical goods. Primary needs of citizens and families.
Reitteration inflation is problematic but without problematic cost inflation the problematic iterative inflation will never occur. Reitteration inflation is also always cost and cost price inflation.
The consumer price index does not involve the housing market and hiring market of housing enough.
With my Excellent Monetary System wages can increase while costs and sales prices can stay the same or with only minor increases or they can even decrease. Houses will become payable again. Insurances and healthcare and pensions and other social security can be paid a lot more than currently by governments
In our current economies a mixture of all the several kinds of inflations is normal and always the case. Just a bit of cost inflation is normal and not really problematic. A bit of expenditure inflation is not problematic. A massive general cost inflation of certain goods or services is however really very problematic. A very recent and great example of this are the rises in energy prices of the past years and current times.
Several types of inflation always occur to a greater or lesser extend and more or less massively, regardless of how much money is added to the economy. More money in the economy never causes problematic inflation, but in many cases it can prevent it. Sometimes problematic inflation is influenced by how much money is added to the economy, but then that is really only because that money is allocated incorrectly and not because more money is added to the economy. Moreover, in those cases where more money causes problematic inflation this is ultimately only because of the fact that correct government policy is missing that can indeed prevent or solve that type of problematic inflation.
MMT wants with current system that governments spend more and argues that deficits are a myth. But with current monetary system and economic system, the situation that MMT is in, deficits are not a myth but a serious reality. Citizens and companies have to pay back the interest and also parts of the deficits and they have to pay this back through governmental taxes. What MMT actually does is leveling even more money from lower income groups to higher income groups. MMT is a theory that when put in practise will increase the problems in our society and highly disadvantage the poor. MMT also wants that when inflation gets too high, taxation ensures that money will be taken out of the economies. But even less money is not what is needed when inflation gets really high...what then is needed is even MORE money in our economies...not less money!!!. In case of the much higher inflation of the last couple of years, MMT would argue to take money out of the economies. This would have caused a really huge disaster in our economies...it would have led to even a much more severe financial and debt crisis and a huge recession. Even now in current situation, the financlal and debt crisis and recession will most probably develop in the next months and become apparent and really there in the years of 2025 and beyond.
With my EMS, a considerable part of government spendings does not require any taxation. This means that there is no further decrease in the financial position of lower income groups. And with and by means of the ways of spending this additional money for the governments, the situation for lower income groups can even and will even be improved a lot. And while these governmental spendings are without any taxation, also the debts of governments will not increase based on this additional governmental spendings. The government does not loose but only profits a lot because of much more possibilities and a much easier realization of governmental policies.
For the current situation in global economies, it has to be realized that governments and citizens and companies spend a lot of money abroad and that these spendings abroad do not lead to payment of taxes inland. When spending on goods and services inland, government receives much more taxation then when the same money is spent abroad. With inland spending the government gets taxes each time the money is spend again. With outland spendings, only money that is spend back into the country after it leaves trough spendings will lead to a very tiny taxation income for governments.
Some of the problems of our current economy are too high governmental and societal debts, too much poverty and too low wages for most people. It is not sustainable when the huge majority of workers in a society can not even safe money anymore and when house prices keep getting out of hand. Government not doing anything about it.
The inflation lies that more money in our economies leads to inflation serves the Banks and higher incomes in current economies. The less money in our economies the less People can save and the more People and companies need to borrow from the Banks. Without that borrowing Banks can not charge interest and with too much savings and too less borrowing the Banks pay more interest than what they receive
Banks also have a huge interest on mortgages and profit a lot from high house prices. If those house prices go down, they receive less interest on mortgages. Banks rather receive interest on money that customers spend on houses than that they need to only pay interest if that money is kept in a bank account. Even if the seller puts the money in a bank account, then at least they also receive interest on mortgages still being higher than the money they need to pay as interest on savings
The main problem of current capitalist societies is Over taxation and our current monetary and economic systems. Cost prize calculations and lack of a governmental financing system. More governmental services are needed and those require more money. The municipalities also need money and one of and also probably the most important traditional current ways to finance for municipalities is by selling building grounds. This against high prices and these high costs of building ground make houses a lot more expensive. Why would people have to pay that much for a piece of building grounds. Scarcity does justify higher prices but people need to live and should not be restricted too much on that. More building grounds could be made available for less costs and costs of current housing buildings and building grounds could be kind of frozen or even decreased at least a bit.
It would also help a lot if buyers of houses would not have to pay inheritance costs and house taxes. Then they could sell their houses for less. Additional taxation for houses costing more than a maximum level per square meter and or area and or type of building and other important characteristics combinations could help a lot also
More money in the economy is needed after inflation to maintain purchasing power and to ensure that employees spend enough, but also to allow additional money to enter the real economy to keep the total amount of money increase at least as much as what is necessary to compensate for the inflation.Without extra money in the economy, less is purchased and the velocity of money is also lower. This causes a recession. So there needs to be more money in the Economy after inflation.
However, that more money must enter the economy without leading to cost inflation. And that is only possible through my innovation for the monetary system and my excellent monetary system and by increasing income through income tax reductions
If this is not possible, compensation for other taxes or surcharges is also possible. All these ways provide extra money for employees, citizens and/or extra money for companies and therefore extra borrowing options and/or extra spending options for citizens and companies.