What’s Worse Than Inflation? Depression + Inflation

Authored by Charles Hugh Smith via OfTwoMinds blog,

If “markets” controlled by the rich are allowed to distribute essentials, the result will be civil disorder and the overthrow of regimes.

What’s worse than inflation? Depression + Inflation. And that’s where we’re heading. As I explained yesterday in The Fed Can’t Stop Supply-Side Inflation, central banks are trying to reduce inflation by crushing demand. This works in eras of abundance, but not in eras of scarcity in which supply constraints drive inflation.

If the FEW essentials–food, energy and fresh water–are supply-constrained, monetary tightening won’t reduce inflation. Jacking up interest rates to crush demand won’t increase supplies, it only exacerbates the destabilizing inequality of who gets their fill (the rich) and who doesn’t (everyone else).

Food shortages caused by drought and other extremes of weather don’t stop humans from getting hungry, and neither do central bank-created depressions.

And Depression is what we’ll get if central banks continue pursuing their fatal misdiagnosis of the cause and fix of inflation. Central banks can trigger a Depression by jacking up rates and tightening financial conditions, but this won’t put an end to humanity’s needs for the essentials soaring in price due to scarcity.

Central banks crushing demand won’t reduce wages, either, as workers need a living wage or there’s no point in even showing up.

After 45 years of losing ground, the worm has finally turned.

The highly unpopular (and misunderstood) solution to supply-constrained inflation is rationing so everyone gets enough to get by regardless of their wealth or income. Without rationing, the rich and powerful engorge themselves as usual, soaking up scarce supplies with their wealth. Those without wealth do without or are pushed into insolvency, generating civil instability that will eventually threaten the integrity of the entire system the wealthy control with such self-satisfaction.

Rather than cut off the water to the poor who are unable to pay soaring utility bills, it’s the wasteful rich who should be cut off and fined a couple hundred thousand dollars for squandering resources.

If central banks think causing a Depression will reduce supply-constrained inflation, they will be proven tragically wrong. Depletion and scarcity are not temporary and the central bank “solution”–impoverishing the already poor and laying waste to the economy to reduce demand–won’t actually fix supply constraints caused by forces beyond the reach of financial manipulations.

If “markets” controlled by the rich are allowed to distribute essentials, the result will be civil disorder and the overthrow of regimes by those left bereft while the wealthy squander resources because they have the financial means and political power to do so.

What’s worse than inflation? Depression + Inflation. What’s worse than Depression + Inflation? Depression + Inflation + civil disorder triggered by mass impoverishment and wealth inequality.

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