Paul Krugman, Inflation and Cryptocurrencies

Author: Parker Lewis; Source: Gradually, Then Suddenly; Compiler: Block unicorn

Over the past week, Paul Krugman (and cryptocurrency’s top hater), an academic “economist”, professor emeritus at Princeton University, and New York Times columnist, has published several He offered his thoughts on the state of inflation in the United States, assuring everyone that inflation is not as bad as everyone thinks (and as we all know, it is). Although Krugman is best known for his 1998 remarks (or predictions) that the Internet would have no greater impact on the economy than the fax machine, his views remain in the corporate media, global central bankers, and establishment politics 25 years later. important influence among the class.

Price levels for basic goods and services are gradually crushing more and more Americans, especially those with little to no savings. 58% of Americans live paycheck to paycheck, representing the majority of hard-working people in this country. But the problem isn't limited to those with little savings. Everyone feels the effects of inflation. Still, the Ivy League professor was surprised to learn that "smart people" didn't know that inflation had "dropped dramatically." But when he was questioned about the fact that inflation was still rising (just at a slower pace), Krugman was again surprised because people's "perception" of inflation is related to the actual price level, not just the annual indicator. Monthly rate of change. All in all, this is a criticism of Princeton University, the entire Ivy League, the New York Times, the American political leadership, especially people like Krugman, and all Americans who still believe in economists.

What is inflation?

Why is the Consumer Price Index (CPI) considered a fraud?

Inflation refers to a general increase in prices over a period of time, resulting in a decrease in the purchasing power of money. This means that the same amount of money has less purchasing power than before, so people need to spend more money to buy the same goods and services. Inflation is usually quantified and measured on an annual basis.

CPI is the most commonly cited method of measuring inflation, and it is usually measured on an annual basis. However, although the CPI often underestimates the true increase in price levels that actually affect the economy, it remains the most commonly used reference point for inflation. When people say "Inflation has increased [x] %", they almost always refer to the CPI measure published by the U.S. Bureau of Labor Statistics (BLS).

While the CPI does track a basket of goods and prices, this basket of goods is not static and the weights of various goods change over time. However, the fundamental reason why the CPI underestimates inflation has to do with the fact that consumers' ability to pay is a necessary input to the method, and the overall consumption level serves as a self-referential rule for CPI calculations. CPI is closely tied to changes (growth or contraction) in the U.S. credit system, which is controlled and managed by the Federal Reserve, rather than to changes in the prices of individual commodities. This is just like the fact that the basket of goods included in the CPI (and therefore the weights of individual goods) changes over time because consumers are unable to keep up with actual inflation (the gap between changes in wages and increases in the cost of living standards), which It is what first drives substitution towards lower quality goods - namely changes in the basket of goods and changes in the weighting of individual goods.

More generally, consumers cannot spend money they do not have, and the single factor that has the greatest impact on overall spending levels (and therefore price levels) is changes in the money supply, which determines changes in the overall size of the U.S. credit system. For example, over the past 12 months, the Fed has caused the broad money supply to fall by approximately $800 billion, which is equivalent to a 3.7% decline in all deposits in the system. This has the largest impact on overall spending and price levels across the economy. It acts as a moderator for reported CPI inflation. Inflation is still rising on an annual basis, according to the CPI measure, but the CPI measure is not as high as actual inflation levels if individual necessities are measured. In other words, it is surprising that the manipulated and understated CPI measure of inflation is still rising when the money supply is actually shrinking, but the shrinking of money also makes the true (higher) inflation level even more pain.

Now, what has Krugman been talking about?

Consumer Price Index (CPI) inflation is rising on an annual basis, but at a slower pace than before. More people should be happy about this, but not so many are actually happy.

Krugman wants Americans to pay attention to the declining rate of CPI inflation reported on an annual basis. There are two main problems (three if you include the fact that CPI understates inflation). First, inflation is still rising. Second, inflation accumulates. If inflation rises by 3.2% on an annualized basis in July 2023, by 8.5% in July 2022, and by 5.1% in July 2021, total growth over the past three years would have been 19.1%. That's what everyone is feeling and paying attention to, the general growth that has accumulated over a few years and the sense that prices are continuing to move slightly higher from already elevated levels.

But remember, this is just CPI. The inflation that Americans are really feeling is actually higher, especially for goods they need every day, like energy and food. Here are the changes in U.S. national average prices from the beginning of 2020 (end of 2019) to now for i) a gallon of gasoline, ii) a pound of ground beef, and iii) one kilowatt-hour of electricity, which increased by 49%, 28%, and 27% respectively. % – each significantly higher than the 19% change in “CPI” over the same period.

But it's not just general changes in price levels for major commodities such as food and energy that are making it difficult for consumers. The problem is that price levels continue to rise, seemingly every year, which leads to expectations of future price increases. Expectations of future price increases, from levels that were significantly elevated just a few years ago, are particularly psychologically serious because they occur at a time when the Federal Reserve is shrinking the money supply. While most people probably don't even know this is happening, their bank accounts are constantly feeling inflation as their savings dwindle.

Since the peak, deposits have fallen by more than $1 trillion. To this, a "professional" economist would probably tell you that broad money supply (M2, including all checking and savings deposits) is still higher than it was at the beginning of 2020, and I compared inflation to that (from the beginning of 2020 to today ). In fact, the gap is huge - the broad money supply was $15.4 trillion at the start of 2020 and is $20.75 trillion today, an increase of more than $5 trillion (about 33%). This is what causes inflation: creating money out of the air causes inflation. But now think about it, according to the above data, 58% of all people in the United States today live paycheck to paycheck. So today, bank accounts are getting squeezed on all fronts, price levels remain high and price levels continue to rise from highs, and most Americans have little to no savings.

This is exactly the problem that Krugman (and others like him) either refuse to acknowledge, fail to understand, or simply ignore. As a result, consumers are going into more and more debt trying to keep up with inflation. Credit card debt (and other revolving credit) is at an all-time high, exceeding $1 trillion for the first time, 18% higher than at the start of 2020 (an increase of $154 billion), which was the previous record. People are going into debt because inflation is suppressing their living standards, only the extremely wealthy may not feel it much (maybe).

Krugman wants everyone to pay attention to a monthly decline statistic that cannot be measured in daily life, because he believes it is a statistic people have cared about in the past.

Bitcoin is the only way

This theme and topic is undoubtedly related to the root cause of the song "Rich Men North of Richmond," which suddenly became the most popular song in the United States. Your dollars are worthless and are taxed endlessly. It's true, and it touches people across the country. I believe it does this because it connects the reality that people feel suffocated economically in the United States with the corruption of politics. Whether people associate it with the Federal Reserve or elected politicians, it touches on an entire broken system. Not Democrats or Republicans, not Jerome Powell, not Janet Yellen or Ben Bernanke. The idea that the system is broken and the cost of living is moving in the wrong direction is an extremely serious part of it psychologically.

Another reality is that one song cannot change anyone’s life situation. When people wake up on Monday morning, a song isn't going to solve anything. There may be a sense of catharsis in knowing that people across the country are feeling similar anxieties, but it only accurately describes the current situation. It can't remove politicians from office, it can't miraculously end the Fed, and it can't stop people like Paul Krugman from making stupid, inappropriate comments. The economic structure is broken, and its fundamental problem is the centralization of the money supply. Bitcoin is the only way forward because it fixes the fundamental issues that broke the current economic system. It fixes the currency. Centralization of the money supply, and the ability to create money, is the root of the problem. It is the source of inflation and, worse, it causes the entire economic structure to break.

Just to be clear, I'm not talking about all "cryptocurrencies", many are a scam. Many cryptocurrencies are worse than snake oil (many people used to peddle snake oil, saying that snake oil can cure all diseases, which is actually a scam marketing) and are peddled by many scammers, many of whom are Silicon Valley venture capitalists. Only Bitcoin can solve the problems of inflation and broken economic structures. There is only Bitcoin and nothing else, Bitcoin is a form of currency that cannot be printed and no one controls it. There is no CEO, company or government in charge of it. It is simply a form of currency that exists outside the control of all companies, governments and central banks, and best of all its supply is fixed and no one can print more. But like the song, Bitcoin can’t miraculously end the Fed, kick corrupt politicians out of office, or stop the Krugmans of the world from saying stupid things. Bitcoin is just a tool. If you close your eyes and think about Bitcoin for a long time, it doesn't make the dollar's inflation or its effects go away.

Although Bitcoin is just a tool, it is the only one that can be used to address the root cause of the inflation problem. Look, the Fed can keep printing dollars, but they can't print my money - the Fed can't print Bitcoin. Congress can continue to spend dollars they don’t have (mainly because the Fed creates more dollars), but they can’t spend Bitcoin they don’t have. A new car can solve the problem of a broken car, and a new home can help solve the problem of a dilapidated house. Gyms can help solve the problem of being out of shape (to an extent), but only better forms of currency can solve the problem of broken currency.

Educate your friends and family that problems will not resolve themselves and that the only way out is through the storm (not around it). Just because there is no easy solution or one that is obvious to most people, it doesn't mean that the solution isn't very logical. Inflation is caused by printing money, "taking away the right to indiscriminately print money" means stopping allowing anyone to increase the amount of money at will, which is what Bitcoin does. A broader solution (and a more stable economic structure) is rooted in everyone's decision to opt out and the cumulative effect of everyone finding a solution one by one. Everyone has an incentive to solve the inflation problem for themselves, and no one else can because of it. Blame for failure to act.

Inflation is not 3.2%, it is not falling. Since 2008, the Fed has increased the base money supply 9 to 10 times (an increase of $8 trillion). During the same period, the broad money supply (M2) tripled (by $14 trillion). Inflation in commodity prices is only beginning to catch up with historically large increases in the money supply. In response to rising inflation, the Fed raised interest rates quickly, sharply, and artificially (starting approximately in March 2022). The Fed's actions directly contributed to a wave of bank failures earlier this year, and the same problems remain and lurk underground. But more fundamentally, rising interest rates do not make food and energy more plentiful or cheaper—in fact, quite the opposite. There will be more problems erupting, which will eventually lead to more money printing and more inflation - an epidemic of money printing that will logically and ultimately play out into hyperinflation.

But hyperinflation is not the end of the world, hyperinflation of fiat currencies is a reasonable and logical response to governments and central banks creating money out of thin air. Bitcoin is the other side of the same coin. It is the light at the end of the tunnel. Yes, there is a five-alarm fire, but the solution to put it out once and for all is at hand. It won’t cure all of the world’s problems. But solving the currency problem will repair the foundations of the economic structure. With each person who comes to realize this, the world is one step closer to a more stable and balanced economic system.