This is an opinion editorial by Federico Rivi, an unbiased journalist and writer of the Bitcoin Train publication.
We are elevating rates of interest “as a result of we are preventing inflation. Inflation has come out of virtually nothing.” So stated European Central Bank President Christine Lagarde, host of the Irish discuss present Late Late Show on Friday, October 28, 2022. Words apparently contradicting a press release that got here shortly afterwards in the identical interview. Inflation, she said, is brought on “by Russian President Vladimir Putin’s struggle in Ukraine. […] This power disaster is inflicting large inflation that now we have to defeat.”
The Rate Hike
The day earlier than the interview the European Central Bank had raised interest charges by an additional 75 foundation factors, bringing the entire progress utilized within the final three conferences to 2%: the best degree since 2009. In all chance it won’t finish there, because the Governing Council plans to “raise rates further to ensure a timely return of inflation to its medium-term objective of 2 per cent.”
According to the latest data, the rise in costs within the euro space has truly reached ranges by no means seen within the final 20 years: +9.9% in September in contrast to the identical month final yr. Countries like Latvia, Lithuania and Estonia are seeing worth will increase of twenty-two%, 22.5% and 24.1% respectively.
In the widespread consensus on the that means of the time period inflation, nonetheless, there is a serious inconsistency. A distortion of the true idea that leads leaders, consultants – and consequently the media – to attribute totally different causes to the phrase, relying on the comfort of the second. When the trigger, in actuality, is at all times and just one.
Inflation And Price Increases Are Different
For many, inflation is now synonymous with rising costs. This is not only a widespread perception however a that means that has additionally been adopted by economics textbooks and the official language. According to Cambridge Dictionary inflation is “a general, continuous increase in prices.”
But is this actually the case? Bitcoin teaches one factor: Don’t belief, confirm. And by verifying, an issue emerges: the reversal of trigger and impact.
Inflation is handled because the impact of a sure occasion: an power disaster, a chip scarcity, a drought can all lead to greater costs for items and companies in sure sectors. But in actuality inflation, in its unique that means, doesn’t imply the rise in costs, it signifies its trigger.
The clue comes instantly from etymology: inflation comes from the Latin phrase inflatio, itself a spinoff of inflare, i.e. to inflate. Think about inflating a balloon: the act of inflare (inflating) is when air is blown from the mouth into the balloon: the trigger. The speedy consequence is the enlargement of the quantity of the balloon that is taking in air: the impact.
Pumping new air into the balloon is the motion that leads to its enlargement. The similar reasoning applies to cash: the very act of printing cash is inflation and its consequence is a rise in costs. This reversal of trigger and impact was already referred to within the late Nineteen Fifties as semantic confusion by one of the distinguished economists of the Austrian college, Ludwig von Mises:
“There is nowadays a very reprehensible, even dangerous, semantic confusion that makes it extremely difficult for the non-expert to grasp the true state of affairs. Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term “inflation” to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages.”
If, due to this fact, there could be many causes of worth will increase, there can’t be as many causes of inflation as a result of it is itself an origin of worth will increase. It could be far more satisfactory and intellectually sincere to say that the lower in buying energy may end up from a number of elements together with inflation, i.e. the printing of cash.
Money Flooding
So how has the European Central Bank behaved by way of financial issuance lately? The handiest determine to perceive this is the ECB steadiness sheet, which exhibits the countervalue of belongings held: these belongings for which the Eurotower doesn’t pay however acquires by creating new foreign money. As of October 2022, the ECB held nearly EUR 9 trillion. Before the pandemic, at the start of 2019, it had round 4,75 trillion. Frankfurt has nearly doubled its cash provide in three and a half years.
Euro Area Central Bank Balance Sheet. Source: Trading Economics
If we measure the quantity of euros circulating within the type of banknotes and deposits – the determine outlined as M1 – the quantity is barely extra reassuring, however not a lot: at the start of 2019 there have been nearly EUR 8.5 trillion in circulation, as we speak there are 11.7 trillion. A progress of 37.6%.
Euro Area Money Supply M1. Source: Trading Economics
Are we actually certain, then, that this worth progress – or because it is wrongly referred to as by everybody, inflation – comes from nowhere? Or that it is only a consequence of the struggle in Ukraine? Given the sum of money provide injected into the market within the final three years, we should always depend ourselves fortunate that the common worth progress of products and companies is nonetheless caught at 10%, due to the restrictions of the pandemic and the next financial disaster we are coming into.
What does Bitcoin have to do with all this? Bitcoin has all the things to do with it as a result of it was born as a substitute to the financial catastrophes for which central banks proceed to make themselves accountable. An various to the bubbles of unsustainable progress alternating with ruinous crises brought on by the market manipulation of the interventionist utopia. Bitcoin can’t inform the world that “inflation came from nowhere,” as a result of its code is public and everybody can verify its financial coverage. A coverage that doesn’t change and can’t be manipulated. It is mounted and can stay so. 2.1 quadrillion satoshis. Not yet one more.
This is a visitor put up by Federico Rivi. Opinions expressed are totally their personal and don’t essentially replicate these of BTC Inc or Bitcoin Magazine.
