The Mittelstandsinstitut Niedersachsen is receiving an increasing number of enquiries from self-employed entrepreneurs and employed SMEs about what they should do with their saved cash. Obviously, during the COVID-19 lockdowns, liquidity in many households has increased to such an extent that investment pressure has arisen.
This is also indicated by the highs in the stock markets – after all, the “COVID-19 money flood” has to go somewhere and it goes first into the stock markets, but also into bonds, which do not yield a return, but are still a traditional investment option.
And the gold price also shows that people are willing to invest in security (gold) instead of returns.
The most pressure is apparently in the real estate market, which is already a real estate bubble, but which many people see as an escape from the dreaded inflation and currency reform. That after a currency reform the real values of real estate would also be burdened is not yet believed by most, despite past experience.
The private household liquidity squeeze is a natural consequence of the lockdown of our shops, restaurants and entertainment venues. People could not spend anything in the last six months, so they accumulated idle income. But this means that after the lockdown is lifted, pent-up demand will come into the market with excess demand and shortages of supply, which will lead to price increases, and thus we will see a temporary “post-COVID-19 boom” until the pent-up cash flow of private households is spent.
In anticipation of this expected price increase, commodity producers already announced up to 30% commodity price increases for the summer of 2020 (metal, wood), and the tourism industry is also starting to make up for the losses from the COVID-19 drought with surcharges.
In the USA, Biden has launched the 1.9 trillion consumption package already initiated by Trump, so that a new upswing is to be achieved by flooding the country with money.
The EU is trying to do the same with 750 billion gifts and loans to the highly indebted states as “COVID-19 aid” and at the same time as a “Green Deal”.
So trillions of newly created money is being pumped into the market to absorb the recessionary consequences of the COVID-19 period and create a new artificial boom. However, an increase in the money supply in the case of stagnation of goods usually means excess demand and price increases, i.e., inflation. The FED and the ECB have now set themselves a maximum inflation target of 2%, because the over-indebted countries such as the USA, Greece, Italy, Spain, France would become insolvent – would have to go bankrupt – if the interest rates on their bonds were higher. In order to prevent this, inflation, especially of government bonds, is stopped, zero interest rate policy prevails, the inflationary pressure of money multiplication is continuously stopped by state and central bank interventions.
This behaviour is actually only typical of socialist central administrations, which create and spend money excessively, but then have to shut it down so as not to let the price level rise accordingly, in order to prevent inflation. Under Hitler this was called “pent-up inflation”. This works well as long as the central power can still direct and neutralise the additional money. In socialist administrative economies this is done by stopping prices on the markets, in our financial-socialist system this is done by state debt financing and redistribution.
As long as the central banks pack the newly created money into new government debt and the states can convert this money into social benefits, it will not have an effect on the market, it cannot lead to the inflation that is actually inevitable. This is the only way to explain why, despite the flood of money in recent years, the central banks have been able to successfully impose a zero-interest rate.
With more and more money, however, the pressure of excess liquidity in the financial system increases, despite the price freeze or zero interest rates.
This can – if it rises slowly – have the effect of a slow increase in interest rates desired by the central banks, as long as the liquidity wave of new money is not too strong. However, it has long since become too strong due to the COVID-19 bailouts; hence the other way follows, that the state and central banks exert counter-pressure against the liquidity wave until the flood of liquidity overruns the financial system and blows it up. This was the case in post-war Germany in 1947, in the GDR in 1989 and will probably soon be the case here as well.
The liquidity bubble, which in the meantime has been doubled by the COVID-19 bailouts and the COVID-19 lockdown, will therefore be artificially maintained until autumn at the latest, and will only burst open after the lockdown with price increases, incipient inflation and a short-term bogus boom, until the worldwide flood of artificial money threatens to lead to galloping inflation. However, galloping inflation would not only be an expropriation of savings capital and credit balances, but would also mean mass national bankruptcies of the over-indebted countries. To prevent this, a currency reform is already being prepared by the central banks, which is expected to lead to a digital currency. Such a currency would have the advantage that the central bank could carry out monetary reforms at will by deleting zeros, that people would no longer be able to spend money without the consent of the banking system and that they would be subject to the total financial control of the central banking systems. Financial freedom would then be gone, but a new central financial domination system would be established.
In any case, we should not believe that the unrestrained money multiplication of our financial politicians and the central banks (“Euro bailouts”, “Green Deal”) would remain without consequences. We are not yet noticing the consequences only in the short term, because the actually necessary inflationary consequence is being artificially stopped for the time being. But a pent-up inflation will break out at some point.
Thus, pent-up inflation is not a permanent condition, but merely a temporary artifice that cannot be sustained, but will eventually dissolve into natural inflation or monetary reform.
In any case, a post-COVID-19 interim boom should be welcome to our government for the election. Even bogus prosperity and pent-up inflation appear to ordinary voters as (bogus) prosperity for which they thank the government. •
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