Why has the global inflation skyrocketed?
By Daniel Campos 14/5/22
The most recent expression of the world crisis of capitalism is the rise in prices and global inflation. Every day, millions of people in all the countries of the world observe with surprise how the prices of products rise, and rise, without anything stopping them. This symptom of the crisis is particularly serious because it acts to rapidly increase hunger, poverty, and misery in the five continents.
Spokesmen and capitalist analysts say that this price escalation is a product of the war in Ukraine. This is false. The war in Ukraine exacerbates the problem as it affects food and energy prices, but the rise in prices began in 2021, when the war in Ukraine did not exist.
In turn, the workers of the world, deceived by the political, social, and trade union leaders who defend capitalism, believe that this only happens in their country. Only a few manage to know that inflation is a global phenomenon, and that like the Coronavirus, no one can escape it. No matter what country we live in, we cannot escape global inflation.
The lies, deceptions, and lies that capitalist governments say about the causes of inflation are more harmful than inflation itself, because they leave workers at the mercy of the crisis. The capitalist governments and the reformist leaders cannot tell the workers and peoples the truth, they cannot publicly acknowledge that they have no way of curbing inflation.
They cannot say publicly that the inflation has been caused by the central banks of the major capitalist countries, and that therefore curbing inflation is completely out of their control. They cannot say so because both the governments and the reformist leaders fear that the mass uprising that is shaking the world will intensify. They seek to hide from the masses that inflation is just a symptom of the serious crisis that capitalism is going through.
The current crisis of the capitalist mode of production is presenting serious symptoms, some of which are the tendency towards global recession or depression, the cut in the supply chain or "global jam" , the growing inequality and growth of hunger, and the poverty, bubbles and speculative maneuvers, the "crack" of cryptocurrencies, the development of pandemics, wars, climate change, etc. Inflation is a symptom that, together with all the above, is an expression of the collapse that the capitalist mode of production is currently experiencing.
But while the bourgeoisie and its collaborators lie and cannot resolve the issue of inflation, another social class has come out all over the world to decisively confront inflation. The working class, dragging with it all the most oppressed popular sectors, has launched the struggle from its organizations throughout the world. In this article we will analyze the triggering of global inflation, its causes, how it acts to aggravate the crisis that capitalism has been going through since the year 2000, and the perspectives that this phenomenon opens up in the world situation.
The spike in global inflation
From the year 2021 inflation began to skyrocket around the world. In countries that already had inflation, this meant a worsening of the problems that this phenomenon causes, while in countries with low inflation, or that did not have inflation, it meant the beginning of suffering from the phenomenon. The only country of importance that is not experiencing an inflationary process is China, which is experiencing an exactly opposite process, of deflation, which also constitutes a serious crisis. Deflation expresses the fall into depression of the Chinese economy, with growth oscillating around 4%, the lowest in the last 30 years.
Inflation soars in 2021 in the US, the EU, Japan and among the 4 most important imperialist economies
Inflation skyrockets in 2021 in the US, the Eurozone, Japan, and Great Britain. Source: Investing.com, Bank of Japan
Why did this jump in global inflation occur in 2021? It is the product of the enormous printing of fictitious money, or issuance of fictitious capital that the central banks of the most important capitalist countries carried out as of September 16, 2019, for more than 30 months, going through all of 2020, 2021, and what that goes from 2022. Throughout this period the central banks injected the monstrous amount of 33 billion dollars (U$S) destined to rescue the corporations that dominate the global economy, which constitutes the largest bailout operation in history. the history of capitalism
We call this rescue operation QE4 (in English Quantitative Easing 4). This bailout operation is being carried out simultaneously by the US central bank (Federal Reserve, known as the "Fed" ), the European Central Bank (ECB), the Central Bank of England (BofE), the Central Bank of Japan (BoJ), the People's Bank of China (BofCh), etc., among others. QE 4 implies an injection of US$34 billion per month, US$1.111 billion per day, and US$46.3 billion per hour, from the US central bank alone. This brutal mass injection of capital in such a short period of time is what caused the inflation spike in the main capitalist economies of the world in 2021, as we show in the preceding table, which later spread to the entire world.
QE4 began with the heart attack in the heart of Wall Street: The "Repo" crisis
Why did QE4 occur? The capitalist governments lie that the rescue packages are to deal with the COVID-19 pandemic. A small fraction of this money was used for this purpose, but the majority of the money was sent to the Corporations that dominate the world economy. This international bailout operation began on September 17, 2019, when the COVID pandemic did not yet exist, and the New York bank replacement market exploded . This market, called "Repo" market in financial media, is a circuit that manages the circulation of money between Global Corporations, an interbank rate that is the heart of world capitalism.
The "Repo" market acts overnight to "Replenish" missing money to the banks and companies that dominate capitalism globally, with an interest rate that fluctuates around 10 basis points, or 0.1%. But the market collapsed on September 17, 2019 when the "Repo" rate for loans between banks jumped almost 700 basis points, and touched 10%, that is, the circulation of money on Wall Street disappeared, and the rate of interest on interbank loans
In this way, capitalism was approaching bankruptcy, because just like the blood circulation process in the human body, if the circulation of money stops, capitalism globally goes bankrupt. The explosion of the "Repo" market threatened 4 large corporations among which they dominate the world economy: JP Morgan Chase, Bank of America (BofA), Citibank, and Wells Fargo, especially JP Morgan Chase, which is the largest Global Corporation biggest of the world.
The spectacular jump in the "Repo" rate on September 17, 2019. Left Image: In pink, the jump in the "Overnight Repo" (in Spanish "Repositorio Nocturno" ). Right Image: The jump in the "Repo" rate. Source ICAP
To close the "Repo" crisis, the Fed injected 203,000 million dollars in a week, and as of October 11, 2019, it began to inject 2 billion dollars a day, that is, 60,000 million dollars a month, which gave start to QE4. But the "Repo" crisis did not come out of nowhere, but was preceded by the fall into recession of China in 2018, and the development of the trend towards recession of the entire world economy in 2019. When the market exploded "Repo", a virus appeared at the same time in Wuhan, China, preparing the conditions for the global expansion of COVID-19.
By December 2019, the virus had become an epidemic in Wuhan, and by January 2020, the pandemic in China had become a global pandemic. The capitalist governments established health operations, based on confinements, and other types of mechanisms, arguing that they did not have the resources to face the pandemic. But this was false, since at that very moment they were injecting money into the aristocracy of the 1%, at an average of 3 billion dollars per hour.
In the midst of the development of the Coronavirus pandemic in the US, Donald Trump and the US Parliament approved in March 2020 the largest bailout package in the history of the United States of 2.2 trillion dollars, called law "CARES" ( "Coronavirus Aid, Relief, and Economic Security" ). Meanwhile in Europe Christine Lagarde president of the European Central Bank (ECB) also announced 1 billion in bailouts. On December 27, 2020, another bailout package was enacted, known as the Consolidated Appropriations Act of 2021 ( "Response and Relief Act" ) for nearly US $ 900 billion, at a time when Joe Biden triumphed in the elections about Donald Trump.
By March 11, 2021, Biden enacted the third bailout plan called the American Rescue Plan Act , for US$1.9 trillion. Along with other minor bailout packages, the imperialist governments of the United States injected, between September 2019 and early 2021, the monstrous amount of money 5.7 billion U$S, which added to the similar packages launched by Europe, England, China , Japan, Switzerland, etc totals around 33 billion U$S in bailouts. This caused that in the year 2021 inflation began to skyrocket in the imperialist countries, and it spilled over to the entire world.
The video shows the spectacular development of the 2020 bailouts in the United States with the CARES package, launched by Donald Trump. At the end of the video, the masses of money thrown into an empty pit by tractors represent the masses of capital printed by the Fed in one day
Bailouts are inflationary
Why do bailouts trigger inflation? The bailouts are inflationary because they go against the Law of Value, which states that what creates value is human work. Goods that do not have human labor have no value. That is why money must be backed by gold or precious metals, which are assets that have value, because they have human labor contained in them.
When a central bank issues money outside of the gold it has in its vault, this movement generates a devaluation of the money, because the masses of banknotes issued do not have gold backing, that is, they are masses of capital that have no value. When the central bank of the United States (Fed) issues monstrous masses of money as bailouts, it does nothing more than devalue the dollar, and all the currencies of the world that are referenced in the dollar. This movement devalues the dollar holdings of all the central banks of the world, the dollars of all the companies, the branches of production, of all world trade, and of all the bills in circulation on the planet.
This phenomenon, for a humble worker, appears as food prices increase. But it's just a physical illusion. In reality, bread, milk or meat did not increase, the problem is that the money that we all have in our pockets is worth less, and it is less enough to buy products. This devaluation was produced by the Fed, which, by issuing gigantic masses of money, devalued unequally and combined all the currencies of the world. By issuing billions of dollars per second to save the Corporations, the Fed, ECB, BoJ, PBOC, BofE, etc plunge millions of workers and peoples into hunger and despair.
The Balance sheet of the Central Banks of Switzerland, England, USA, Japan and Europe in trillions of dollars (in Spanish billions). Between the years 2009 and 2019, the balance sheet rose $8 trillion. From 2019 to 2021 it also rises 8 trillion, that is, in two years the central banks injected the same amount of bailouts as in the previous 10 years. Source Fed, ECB, BoE, SNB, Bloomberg
The bourgeoisie has manipulated money prices throughout history, always in defense of their profits and interests. The great inflation of the 16th century, studied by Hamilton, was the product of price manipulation carried out by the manufacturing bourgeoisie and the Commercial Companies that launched the colonization of the 5 continents from Europe. Likewise, the bankruptcy of the gold-dollar parity in 1971 by the Nixon government was carried out by US imperialism to manipulate the price of the dollar at will in defense of the North American multinationals.
Bailouts are manipulation of money that enriches the aristocracy of the 1%, and sinks 99% of the population, fundamentally the poorest, most vulnerable, and defenseless. In turn, the bailouts are the categorical expression of the domination of the United States, and Wall Street of the world capitalist economy, which liquidates all the talk about the "rise of China" or "new imperialisms", which arise to displace the United States . of global hegemony, as proposed by the "Decoupling Theory" . The bailouts are promoted by the US and blindly obeyed by all the main capitalist governments in the world as an undisputed expression of the dominance of the dollar, that is, of the US state and its Corporations.
The rise of QE: The scam that "accelerated" the crisis
QE "Quantitative Easing" is a term coined by capitalist officials for bailouts. It precisely means "Quantitative Flexibility" , that is, it is a euphemism to refer to the fact that the rules for printing money are facilitated. The world crisis of capitalism began in 2000 when the dot -com bubble burst, but headed for a sharp peak between 2007 and 2008 when all the multinationals that dominate the world capitalist economy went bust with the bubble burst. "subprime" .
To get them out of bankruptcy, bailouts were implemented. The Central Banks printed money en masse to put it in the pockets of the aristocracy of the 1%. Over 10 years the super rich owners of JP Morgan Chase, Goldman Sachs, Bank of America, Morgan Stanley, Wells Fargo, Citigroup, BNP Paribas, Deutsche Bank, etc. received around 30 billion dollars. It is a figure that for any normal human being can hardly understand. Analysts, economists and defenders of capitalism argued that they should carry out the bailouts because these companies were " Too big to fail" (in English, "Too big to fail" ) .
This whole economic operation was a fraud. The mass of banknotes that was printed is fictitious capital without gold backing. It was granted to the rich with a 0% interest rate, when any citizen who requests a loan to buy a bicycle must pay interest. But the aristocracy of the 1% had billions of dollars loaned to them without interest. Fraudsters and crooks on Wall Street, the City of London and the world's stock markets made huge profits in commissions.
The bailouts began in July 2007, at first in a disorganized and random manner. But since in order to carry out all this illegal fraud, all the laws of capitalism itself had to be violated, a battery of decrees, resolutions, and a whole complex system of economic operations were instituted to make up balances and hide transfers.
The title states "10 trillion hyperinflationary stimulus package", referring to the 2020 bailout in the US. It denounces that Central Banks determine the price of money. Source: Demonocracy.info
The maneuvers were legalized in the G-20, and the money was authorized from the Central Banks from all the imperialist countries USA, Japan, England, Germany, France, Canada, and Italy, as well as in China, which is not a country imperialist, but a capitalist sub-metropolis. Thus, in 2008, in a coordinated and global manner, QE (Quantitative Easing) began with 3 objectives:
1) That the Global Conglomerates do not go bankrupt
2) Prevent the collapse of capitalism by resuming the circulation of money
3) That the world economy does not enter a recession
The QE managed to meet the 3 objectives with great difficulty. But what Karl Marx got tired of explaining happened: Economists and bourgeois officials do not understand how the system they command works. When they thought they were saving capitalism, QE not only didn't save it, it made it sink even deeper. This is so because the bailouts rapidly aggravated and sharpened all the contradictions of capitalism to the extreme, and prepared the conditions for the collapse of 2019. We are going to see, step by step, how capitalist officials organized this disaster.
The road to QE4 "whatever it takes"
The first tranche of bailouts was called QE1, and began in September 2008, until 3/31/10. When the world economy again showed symptoms of recession, the second round of bailouts began on 11/3/10 called QE2 until 6/30/11. But it failed to avert the danger of crisis, which led to a third round of bailouts called QE3, which started on 9/13/12 until 10/29/14, when it stopped in the US. In Europe, QE was developed during 2015.
As the QE had avoided bankruptcy, revived circulation and avoided recession, by 2015 all the economic authorities, analysts and officials of capitalism assured that the crisis had been overcome. Janet Yellen, then Fed chair, said there would be no more crises "for many years, and maybe never again." A whole chorus of charlatans argued that we were facing the "longest economic growth since the postwar period," that the "worst was over," and that the time had come to "normalize" the economy.
However, the reality was the opposite. What produced 10 years of injection of billions of dollars was a real disaster that pushed capitalism into greater and more serious dangers. If what had caused the explosion was a US mortgage crisis, now that mortgage crisis had multiplied by 12 and spread to 11 countries.
On the other hand, one of the reasons for the crisis was the size of the companies that dominate the world economy. These Global Corporations, the "Too Big to Fail" after years of injections of monstrous masses of capital are now bigger and more dangerous. Having injected these huge financial parasites with bailouts, I exploit the development of old speculative maneuvers such as share buybacks, and all kinds of fraudulent activities. Criminal financial activities that according to the capitalist analysts themselves are "weapons of mass destruction" multiplied .
Risky speculative plays develop so-called speculative "bubbles ." The overaccumulation in a few hands of the 1% of aristocrats caused a bubble to be mounted on a global scale that bourgeois analysts call the "Bubble of everything". Financier Jared Dillian explains it this way: "...In 2000, we had the dotcom bubble. In 2007 we had the housing bubble...In 2017, we have the everything bubble..." (Stock Market 6/29/17 ). And in China a gigantic bubble was formed that is called "the mother of all bubbles"
The Fed Balance sheet up to 2017. The graph shows the development of QE1, QE2, and QE3. Source: Federal Reserve, JPMorgan Chase
But the bosses of capitalism, true to their belief that "the worst of the crisis is over," began an economic operation called Quantitative Tightening (QT) in November 2017. In a reverse process to QE, instead of printing money to make it circulate, QT is withdrawing money from circulation. The Fed assured that the transition from QE to QT would be so gradual that it would not cause any problems. Philadelphia Fed President Patrick Harker announced that the process would be as boring as watching paint dry. Together with the QT, the Fed carried out five increases in the interest rate.
Contrary to everything that the officials raised, with the QT capitalism exploded. To the extent that the Fed restricted the flow of money, and raised interest rates, it became a vacuum cleaner that sucked up all the dollars that circulated around the world. By attracting dollars from all over the world, it provoked the crisis of the currencies of the developing countries because the dollars began to flee from the economies of the poor countries. Turkey and Argentina collapsed.
Currencies in Indonesia, India, and Egypt began to shake, and conditions in hundreds of countries worsened. Developing country bonds sank. On February 5, 2018, the biggest crash since 2000 on Wall Street took place, and the VIX index that measures the uncertainty of the world economy soared. Three months after QT began, all the mirage of the "end of the crisis" collapsed. The economy embarked on the global recession, and in September 2019 the money "disappeared" on Wall Street, when the "Repo" crisis occurred.
This is how the QE4 was born. When the then president of the European Central Bank (ECB), Mario Draghi, was asked how far he would go in his maneuver of printing money to support the Global Corporations, the former Goldman Sachs official said : "The ECB will do everything necessary." Mario Draghi's words were prophetic. The authorities of world capitalism to stop the debacle caused by QT, were forced to carry out "Whatever is necessary" and desperately inject billions.
QE4 triggered inflation. Towards a new QT?
With QE4, the equivalent of the bailouts that were implemented in the previous 10 years were injected in 2 years. At an even faster and more dizzying speed. In the midst of a pandemic and a colossal level of destruction of the productive forces. But with global inflation soaring to these dangerous levels, the economic authorities of world capitalism are debating whether to go to a "new QT" or continue with QE.
The heads of world imperialism are faced with this paradox: If before the start of QE4 the outlook for the world economy was recession, now it is depression. This is the gloomy expression of the collapse of the capitalist mode of production. So if they withdraw QE they can bankrupt the Global Corporations that rely on the QE4 artificial respirator day to day to avoid bankruptcy. But if they don't withdraw QE, they send global inflation skyrocketing. They are in a trap in which they have fallen themselves with their frauds, and traps.
The great companies that dominate the world capitalist economy, full of junk bonds with negative yields, delight lovers of the undead and zombie movies. Fans of those movies don't have to spend money on streaming channels anymore, now they just need to read the bond yields of the US, China, Switzerland, etc. There you will see real zombies. Companies like JP Morgan Chase are living dead, more real and monstrous than the ones in the movies. You're going to see dapper executives in suits and briefcases cruising around on expensive jets that run huge companies. That contradict the laws of capitalism because they scare away money. But they live on QE4 because they are simply dead.
The graph shows the Quantitative Tightening (QT) started at the end of 2017. By 2019 the QT led to a new serious crisis and had to be suspended. Saint Louis Fed Fountain
Other phenomena triggered by the bailouts are added to the tendency towards depression of the world economy. The "global jam", the paralysis of fundamental parts of ports and distribution chains and world trade leads millions of buyers of goods to wait months to receive their merchandise; when laden container ships queue for weeks at the ports of Rotterdam, Antwerp or Los Angeles. Toys that don't arrive in time for a lucrative Christmas campaign, car plants that stop because they don't have semiconductors, and construction that is delayed due to the shortage of wood, aluminum or steel. All expression of the disaster of irrational capitalist production.
The world working class stands up to face inflation
Global inflation has triggered another extraordinary and highly progressive phenomenon: The working class all over the world is rising up to face inflation. The unions and labor organizations of the world are revolutionized, and a new union activism of millions of young people, women, indigenous people, and native people take to the streets to confront the Global Corporations and capitalism.
Before Putin's invasion began, Ukraine was plagued by a wave of workers' strikes against the Zelensky government. Putin himself had to suffocate the revolution of the people of Kazakhstan led by workers' detachments from the country's manufacturing cities, who demanded better wages and living conditions. The invasion of Putin's capitalist oligarchy crashed against a people led by a strong working class that organized itself in an armed way to face inavision, and has already defeated Putin in two crucial battles, that of kyiv, and that of Kharkiv, 1st and 2nd cities of Ukraine respectively.
The European working class has shown solidarity with Ukraine, without placing a millimeter of trust in its imperialist NATO governments. In France, the bourgeois media intend to show Macron as a European hero, while the working class and the French people repudiate him and have been confronting him with the yellow vests in the streets since 2019. The French people took over the universities, and the working class refused to vote in the clownish 2nd round of the French elections.
Workers in Belarus have successfully boycotted arms supply shipments from the capitalist oligarchs, while workers across Europe stand in solidarity with the people of Ukraine by refusing to unload Putin's ships. In Sri Lanka, the workers have already launched general strikes against capitalist hunger, in Chile the people begin the mobilization again now against Boric, in Colombia, one year after the National Strike, the workers and popular detachments are mobilizing again, the general strike is declared in Peru against the Castillo government.
In the United States, strikes flourish in all branches and industries, along with the emergence of a new union activism that confronts the union bureaucracy and the Global Corporations that deny them the right to unionize. The victory of the Amazon workers who managed to form a new union overcoming all the threats and maneuvers of the bosses, is an example of this new young activism led by black activists, which arises to fight for the rights of workers.
Chris Smalls and their comrades announce the triumph of the formation of the union in the second largest Corporation in the US on April 1, 2022
We are living a world revolution against capitalism
Bourgeois economists and vulgar Marxists will make big announcements. They will say that a "better" capitalism is possible. That the better, more humane, and stronger capitalism will come out of the pandemic and inflation. The president of the United States, Joe Biden, received the new Amazon delegates at the White House to promise them that they can carry out employment plans, stimulus plans, return to Keynesianism, or to the post-war " boom" . They promise that they will bring this or that law to parliament. That you can turn back the clock of history.
You will hear all kinds of quackery, and lies spread 24 hours a day by the media and social networks by the church, the military, the capitalist economists, officials, the Progressive International, and most of the world left that has become reformist. Don't believe any of them. They lie because the defenders of capitalism are afraid to tell the workers and peoples of the world the most important truth: that the central banks triggered global inflation, in order to get capitalism out of collapse. And that they failed.
And that then the failure of the central banks aggravates the collapse of capitalism, of which the masses of the world only perceive the consequences: The billions who sink into poverty, who suffer the destruction of nature, deaths from pandemics, the destruction of productive forces by war. This general picture of collapse constitutes a historical, epochal, civilizational crisis, of which unstoppable inflation, like fever, is just one more symptom.
For the defenders of capitalism, the peoples of the world should not know that capitalism is collapsing, even though the evidence of it is observable with the naked eye. So it is about giving a serious explanation to the causes of why there is an unstoppable global inflation, what produced it, and what the bosses of capitalism will do, answers that we can only give from Marxism. Let's put aside the charlatanism, trickery, and deceit to bring the activists around the world the Marxist diagnosis of the crisis, with which they will get down to work to end capitalism once and for all.
Capitalism today is a decrepit system, and mortally ill. He cannot go back to being a healthy and robust young man. Science and nature do not work that way, therefore, we Marxists have a different diagnosis from the bourgeoisie and the reformists. And therefore, a different prognosis; What is coming is not a " better capitalism", what is coming is the revolution against capitalism. We are living a world revolutionary situation, led by the most exploited and oppressed sectors of society, women, immigrants, oppressed races, youth, nations, original peoples, and now also by the workers and peoples of the capitalist nations. more advanced.
From Sri Lanka, from Sudan, Algeria, Honduras, France, to Chile, Ecuador, Haiti, Peru, Lebanon, and Palestine to Ukraine, the world's poor raise their voices. The revolutionary wave that is coming is even more powerful and profound than all the previous ones. Both the outbreak of the "Repo" market and the appearance of COVID-19 express the exhaustion of the capitalist mode of production.
Hand in hand with the revolutionary process that is shaking the world, the material and objective conditions are more than ripe to impose socialism. What it is about is building a world Socialist International to carry out this task. This is the invitation that we make from The International Marx, to regroup the revolutionaries, and all the activists who go out every day to face inflation, and the consequences of the collapse of capitalism, to impose Global Socialism, the only serious way out of the disaster that the bosses of capitalism are organizing.
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