“The overall view is that inflation is bad for nearly everyone, but it ignores the big winners in an inflationary cycle.”– Paul Ebeling
Notably, the winners in inflation are those who require little from global supply chains, the frugal, and those who own their own labor, skills and enterprises in sectors with relatively inelastic supply and demand.
In the new book: Global Crisis, National Renewal, the Key dynamics globally are 1) scarcity of essentials and 2) extremes of wealth/power inequality.
Scarcities drive prices higher simply as a result of supply-demand. Conventional economics holds that there are always cheaper substitutes for everything and hence there can never be scarcities enduring long enough to drive inflation: if steak gets costly, then consumers can buy cheaper chicken…
But the conventional view overlooks essentials for which there is no substitute.
Salt water may be cheap but it’s no substitute for fresh water.
There are no scalable substitutes for oil and Nat Gas.
There are no scalable substitutes for hydrocarbon-derived fertilizers or plastics.
As energy becomes more expensive due to the mass depletion of the cheap-to-extract resources, the costs of everything from fertilizer to plastics to steel to jet fuel rise.
1st, this price pressure generates a number of effect. Rising costs embed a self-reinforcing feedback as prices are pushed higher in expectation of higher costs ahead, and these price increases generate the very inflation that sparked the pre-emptive price increase.
2nd, increasing costs either reduce profits or force price increases. Neither is ideal, as higher prices tend to lower sales which then lowers profits.
3rd, prices rise easily but drop only stubbornly, so sharp increases in prices are nor reversed as cost pressures ease: enterprises and workers quickly become accustomed to the higher prices and pay and are extremely resistant to cutting either prices or pay.
Extremes of wealth/power inequality are destabilizing.
Extremes generate reversals as the pendulum reaches its maximum and then reverses direction and gathers momentum to the opposite extreme. In terms of wealth/power inequality, the pendulum is swinging back toward higher wages for labor and higher taxes for the super wealthy, and more regulation on exploitive monopolies.
So, there is more driving systemic inflation than just “transitory” supply-demand issues. Speaking of supposedly “transitory” cost increases that are actually systemic, global supply chains that were deflationary for 40 yrs are now inflationary as costs rise sharply in exporting economies that are now facing much higher labor and energy costs, and also finally bearing the long delayed costs of environmental damage caused by rampant industrialization.
The Revolution is happening, but no 1 recognizes it, labor has been strip-mined for 45 yrs, and now the worm has turned.
As much as corporate employers and governments would love outright indentured servitude where they could force everyone to work for low pay in abusive circumstances, people are still free to figure out how to simplify their lives, cut expenses and work less.
Scarcities of labor are enabling sharp increases in pay, especially in services. Anecdotally, we hear accounts of service workers such as therapists, plumbers, accountants, architects, etc. raising their hourly rates by 20% overnight.
So, highlighting a few winners and losers in a self-reinforcing inflationary spiral.
Asset inflation driven by zero interest rates and waves of central bank liquidity will lose steam as rates rise and the liquidity spigots are turned off. As mortgage rates rise, already overvalued homes will become even less affordable as the number of buyers who can afford much higher monthly payments recedes toward Zero.
Local governments dependent on skyrocketing real estate valuations driving higher property taxes will be losers.
Bonds paying 1% interest are losers once rates click up to 2% or 3%.
Stocks, as the relatively few companies with unlimited pricing power may benefit from inflation, but the majority will be pressured by higher labor, materials, shipping and energy costs, plus higher taxes and fees as the claw-back from capital gathers momentum.
Consumers are losers as costs soar, but service workers with pricing power are winners. The Fed can print $1-T in an instant but it cannot print experienced welders, plumbers, electricians, accountants, therapists, etc., and very little of this labor can be replaced by low-level automation, aka robotics.
Farmers who have been decimated by decades of low-cost imports might gain some pricing power as adverse weather, higher shipping costs and other factors increase the cost of imported agricultural commodities.
Corporations with quasi-monopolies on essential industrial minerals/metals such as copper, magnesium and nickel will have pricing power due to scarcity and the wide moat around their businesses, as it is not cheap to set up competing mines and acquire rights to the minerals.
As a general rule, keep an eye on inelastic demand and supply.
Elastic demand refers to demand which can ebb and flow with costs. Elastic supply is ranchers responding to much higher beef prices by increasing their herds.
There is always some elasticity in demand and supply as conservation, new efficiencies and recessions can stretch or shrink supplies and demand. But demand for essentials such as fertilizer, energy and food can only drop so much, and supply can only increase by so much.
Again, the winners in inflation are those who require little from global supply chains, the frugal, and those who own their own labor, skills and enterprises in sectors with relatively inelastic supply and demand.
And the losers: the losers are those who are entirely dependent on global supply chains for essentials, wastrels who squander resources, food, labor and money and those gambling on the quick return to Zero-interest largesse and endless trillions in liquidity.
Here economist Bruce WD Barren explains the losers.
Below he explains the primary negative 12 effects of inflation and why it is why it is bad for The People and the economy, as follows:
* It effects on Redistribution of Income and Wealth negatively against the fixed hourly and salary worker;
* During periods of rising prices, debtors gain and creditors lose. When prices rise, the value of money falls.
* Salaried workers such as clerks, teachers, and other white collar persons lose when there is inflation. The reason is that their salaries are slow to adjust when
*The problem is that there is often a time lag between the raising of wages by employees and the rise in prices. So workers typically lose because by the time wages are raised, the cost of living index may have increased further.
* The holders of fixed interest bearing securities, debentures and deposits lose because they receive fixed payments, while the those who invest in debentures, securities, bonds, etc. while the purchasing power is falling.
* Producers of goods costs do not rise to the extent of the rise in the prices of their goods because prices of raw materials and other inputs and wages do not rise immediately to the level of the price rise.
* Prices of inputs and land revenue do not rise to the same extent as the rise in the prices of farm products. Thus, the landless agricultural workers are hit hard by rising prices. Their wages are not raised by the farm owners, because trade unionism is absent among them.
* With inflation, the real value of taxes is reduced.
* Fall in Product Quality: producers produce and sell sub-standard commodities in order to earn higher profits. They also indulge in adulteration of commodities.
* Often, an artificial scarcity of commodities is created in the market. Then the producers sell their products in the black market which increases inflationary pressures.
* Encourages Speculation: Rapidly rising prices create uncertainty among producers who indulge in speculative activities in order to make quick profits. Instead of engaging themselves in productive activities, they often risk speculation in various types of raw materials required in production.
* Lastly, an artificial scarcity of commodities is often created in the market. Then the producers sell their products in the black market which increases inflationary pressures.
Have a prosperous day, Keep the Faith!