Skip to main content

Corporate profits were biggest driver of inflation in Europe, IMF admits

Rising corporate profits have caused 45% of inflation in Europe, compared to 40% for rising import prices and just 15% for workers’ wages, according to research by IMF economists.
 
by Ben Norton
 
Part 3 - Rethinking inflation
 
Contemporary mainstream economists typically discuss three types of inflation: demand-pull inflation, cost-push inflation, and built-in inflation.

Cost-push inflation happens when the prices of inputs used in the production process increase. When the international prices of commodities like oil or gas skyrocket, in response to the war in Ukraine for instance, this contributes to cost-push inflation.

Built-in inflation accounts for expectations that inflation that happened in the past will repeat in the future. Corporations often increase their prices every year, for example, simply because they expect costs to increase, not because they actually did increase (but by doing so, costs do sometimes increase).

However, discussions of inflation among Western neoliberal economists are usually focused on demand-pull inflation.

The godfather of monetarism, infamous right-wing University of Chicago economist Milton Friedman, argued that “inflation is always and everywhere a monetary phenomenon”, and specifically consisted of demand-pull inflation: “too much money chasing too few goods”.

Friedman was an inspiration for Chile’s fascist dictator Augusto Pinochet, who came to power in 1973 in a CIA-backed military coup against the South American nation’s democratically elected socialist president, Salvador Allende.

Friedman was so fixated on government monetary policy that he essentially argued that cost-push inflation doesn’t exist, claiming it was merely a product of demand-pull inflation.

But this recent IMF study shows that the right-wing, monetarist view of inflation is much too simplistic. Capitalist firms can cause inflation simply by hiking up their profits to unreasonable levels.

Nevertheless, some monetarist holdovers today still insist that the inflation the world saw following the Covid-19 pandemic was merely caused by central bank money printing.

This fails to explain why there was little consumer price index inflation in the first 12 years of quantitative easing (QE), from 2008 to 2020, before the pandemic hit, and why QE suddenly caused prices to rise only around 2021.

Economist Michael Hudson has pointed out that QE by the US Federal Reserve and European Central Bank in fact fueled asset price inflation, not consumer price index inflation.

In an interview with Geopolitical Economy Report in September 2022, Hudson explained:
 
The result [of quantitative easing] has been $9 trillion, essentially, of bank liquidity that the Federal Reserve has pushed in.

Now, despite the fact that it is asset price inflation, the fact is that asset price inflation has all occurred on credit.

The asset price inflation has occurred when the Federal Reserve makes basically repo swaps with the banks, enabling the banks to deposit some of their packaged mortgage loans, or bonds, government bonds or even junk bonds, with the Fed.

And they get a deposit with the Fed that enables them to now turn around, as if the Fed was depositing money in the bank like a depositor, letting it lend more, and more, and more for real estate, which has pushed up the price.

Real estate is worth whatever a bank will lend against it. And the banks have been lowering the margin requirements, easing the the terms of the loan.

So the banks have inflated the real estate market, and also the stock and bond market.

The bond market from 2008 today has had the biggest bond rally in history. You can imagine the bond prices going down to below 0%. This is a huge capitalization of the bond rate.

So it has been a bonanza for people who held bonds, especially bank bonds. And it has inflated the top of the pyramid.

But if you inflate it on debt, then somebody has to pay the debt. And the debt, as I just said, is the 90% of the population.

So the fact is that asset price inflation and debt deflation go together, because the wealth part of the economy, the ownership part, has been vastly inflated, the price of wealth relative to labor.

But the debtor part has been has been squeezed by families having to pay much more of their income on mortgages, or credit cards, or student debt, leaving less and less to purchase goods and services.

So if there is a debt deflation, then why do we have a price inflation now? Well, the price inflation is largely a result of the war [in Ukraine], the sanctions that the United States has imposed on Russia.

Russia was, as you know, a major gas exporter, oil exporter, and also the largest agricultural exporter in the world.

So if you exclude Russian oil, Russian gas, Russian agriculture from the market, you’re going to have a shortage of supply, and you’re going to have the prices way up.

So the oil, energy, and food have been a key element.

And also, under the Biden administration and certainly the Trump administration, there has been no enforcement of monopoly prices.

So essentially companies have been using their monopoly power to charge whatever they want.

And even though there wasn’t really a shortage of gas or of oil earlier this year (2022), you had a huge spike in the price, for no other reason than the fact that the oil companies could charge it.

Partly this was done by financial manipulations in the forward markets. The financial markets had bid up the price of oil and gas. But also other companies have.

And right across the board, if you have a company in a commanding position of being able to control the market, you have essentially permitted monopolies to take place.

Well, Biden had appointed a number of anti-monopoly officials that were going to try to impose anti-monopoly legislation. But they’re not supported by the Democratic Party or the Republican Party enough to really empower them to have had much effect so far.
 
***

Comments

Popular posts from this blog

UN says Israel is committing crimes against humanity & 'extermination' in Gaza

Geopolitical Economy Report   The United Nations Human Rights Council published a report that concluded that Israel has committed war crimes and "the crimes against humanity of extermination" in Gaza. Ben Norton analyzes the statements by UN legal experts.

Day 1900: Julian Assange still in prison and under slow-motion execution by the Anglo-American imperialist criminals

failed evolution   On 11 April 2019, the Ecuadorian government of traitor Lenin Moreno, invited the Metropolitan Police into the Ecuadorian embassy in London, and they arrested Julian Assange . Since then, Assange is kept in Belmarsh high security prison in London, without actual charges.   The real reason world's number one political prisoner is still kept in this high security prison, is because he exposed horrendous war crimes carried out by the US imperialists and their allies.   The ruthless Western imperialist regime wants to punish the No1 real journalist in the world and make him an example for any Whistleblower or real journalist who will attempt to expose its big crimes in the future.   And the Anglo-American axis has now become officially a fascist coalition , framed by the rest of its Western pets. UK's Home Secretary Priti Patel, one of the most ruthless ever, decided to extradite Julian Assange to US. No surprise of course. The only question we had in mind is

Exposed: How Biden & Ukraine’s Fascists Worked Together to Block Peace with Russia

BreakThrough News   Newly released treaty negotiation documents show that Ukraine and Russia were very close to ending the war—more than two years ago, in April 2022. But U.S. imperialists and NATO have worked with and strengthened the right-wing in Ukraine to achieve their long-term goals in the region, including endless war, no matter how many people die. Brian Becker is joined by Eugene Puryear, co-host of The Freedom Side , to discuss the newly revealed documents showing how the Ukraine war nearly ended two years ago but were sabotaged by the intervention of the White House and the Ukrainian far-right. They discuss how Ukraine’s economy has been totally mortgaged to U.S. and European interests. 

BlackRock & Wall Street banks are profiting from Israel's crimes in Gaza, UN says

Geopolitical Economy Report  Top UN human rights experts called on Western weapons corporations to stop sending arms to Israel, saying they could be complicit in war crimes. Asset managers like BlackRock and Wall Street banks are also profiting. Ben Norton looks at the evidence.

Socialism or Barbarism: What’s at Stake in this Election & Beyond

Double Down News   Roger Waters meets Fiona Lali. Fiona Lali is the independent candidate for Stratford & Bow.   https://www.fionalalircp.com 

Israeli documents show expansive government effort to shape US discourse around Gaza war

As the Gaza war rages, Israeli funds target US college campuses and push to redefine antisemitism in US law   by Lee Fang and Jack Poulson   Part 3 - Substantial Israeli government involvement in American politics   Haaretz and the New York Times recently revealed that Chikli’s ministry had tapped a public relations firm to secretly pressure American lawmakers. The firm used hundreds of fake accounts posting pro-Israel or anti-Muslim content on X (formerly Twitter), Facebook and Instagram. (The diaspora affairs ministry denied involvement in the campaign, which reportedly provided about $2m to an Israeli firm for the social media posts.) But that effort is only one of many such campaigns coordinated by the ministry, which has received limited news coverage. The ministry of diaspora affairs and its partners compile weekly reports based on tips from pro-Israel US student groups, some of which receive funding from Israeli government sources . For example, Hillel International, a co-foun

What UK did in Gaza is SHOCKING & no one's allowed to talk about it

Double Down News   EXPOSED: Britain's Secret Role in Gaza  

Συνασπισμός προοδευτικών δυνάμεων με ηγέτη τον Γιάνη Βαρουφάκη

... για να γλιτώσει η χώρα μια και καλή από τη Μητσοτακική λαίλαπα   failed evolution   Η διάσπαση του κεντροαριστερού χώρου καλά κρατεί, όπως ακριβώς ήθελε η ντόπια ολιγαρχία.   Ο στόχος όμως της στρατηγικής ήττας ΣΥΡΙΖΑ και η επαναφορά ΠΑΣΟΚ στη θέση της αξιωματικής αντιπολίτευσης, απέτυχε και πάλι.  Απέτυχε και η απομάκρυνση Μητσοτάκη από την ηγεσία της ΝΔ και ύστερα από αυτό το Βατερλό στις ευρωεκλογές, οι ολιγάρχες θα πρέπει να είναι στα κάγκελα και να κάθονται σε αναμμένα κάρβουνα. Οπότε χρειάζονται νέα εναλλακτική. Επιχειρήθηκε άλλο σχέδιο, την τελευταία στιγμή και στο πόδι, με βάση το οποίο οι αποστάτες της ΝΕΑΡ θα πήγαιναν στο ΠΑΣΟΚ, έτσι ώστε το ΠΑΣΟΚ με τις έδρες τους, να έκλεβε και τη θέση της αξιωματικής αντιπολίτευσης από τον ΣΥΡΙΖΑ. Απλά, γρήγορα και εύκολα. Το σενάριο διαδόθηκε από καθεστωτικά φερέφωνα που προσπάθησαν να δημιουργήσουν το κατάλληλο κλίμα. Φαίνεται ότι, τουλάχιστον προς το παρόν, κάηκε γρήγορα. Επιχειρείται τώρα νέο σχέδιο με σύνθεση ΣΥΡΙΖΑ-ΠΑΣΟΚ και ε

Israeli documents show expansive government effort to shape US discourse around Gaza war

As the Gaza war rages, Israeli funds target US college campuses and push to redefine antisemitism in US law   by Lee Fang and Jack Poulson   Part 1 - Redefining antisemitism   Last November, just weeks into the war in Gaza, Amichai Chikli, a brash, 42-year-old Likud minister in the Israeli government, was called into the Knesset, Israel’s parliament, to brief lawmakers on what could be done about rising anti-war protests from young people across the United States, especially at elite universities. “ I’ve said it before, and I’ll say it again now, that I think we should, especially in the United States, be on the offensive,” argued Chikli. Chikli has since led a targeted push to counter critics of Israel. The Guardian has uncovered evidence showing how Israel has relaunched a controversial entity as part of a broader public relations campaign to target US college campuses and redefine antisemitism in US law. Seconds after a smoke alarm subsided during the hearing, Chikli assured the l

De-dollarization is growing: Even the US Federal Reserve (reluctantly) admits it

Geopolitical Economy Report Countries around the world are seeking alternatives to the US dollar. IMF economists say de-dollarization is "broad-based". The Federal Reserve reluctantly admits that it is happening. Ben Norton analyzes the latest research.