Bank of Canada and The U.S Federal Reserve Are Expected To hike interest rates by 75 bps as the silly war on fossil fuels continues (Petrodollars) – October 25, 2022,
Everybody has their THEORY as to why interest rates are rising, but the reality of why rates are rising is that the central banks exist to prevent economic DEFLATION. Consumer price inflation is a deflationary mechanism; if it costs more money to purchase fewer goods and services, the economy will DEFLATE. Now, although I’m concentrating on PRICE in this post, prior to the current modern monetary system, deflation was a sign of SHORTAGES.
In a free market, it should be noted that SHORTAGES of STUFF are unlikely. However, the DOWNSIDE to CAPITALISM is that as more STUFF is PRODUCED, the price for STUFF will DEFLATE. This is why FARMERS as an example throughout history, have sought out government subsidies. Because let’s imagine I’m planting food, and the moment I attempt to sell that food that spent a lot of time and energy producing, the PRICE for food DEFLATES, I just wasted a lot of time and energy for a lot less CAPITAL than I anticipated, now, sure I can EAT the food I produced, but that wasn’t why I produced it.
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Now, obviously, in the modern economy, a SKILLED farmer can farm to meet the demands of an EVER growing market, but I do want the reader to comprehend historically where the current modern monetary system comes from. PROTECTIONISM is nothing new; any seeker of profit wishes to PROTECT themselves from loss; this even includes GOVERNMENT people, who usually do not want to SHRINK the size of their government.
Firing people is NOT easy, especially for government folks and what people tend to forget about GOVERNMENT SPENDING is that it should be called Government investing for the future. The central bank is a GOVERNMENT institution that is basically created to FIGHT DEFLATION. Without a central bank, without a country having the ability to control its own money supply, market forces can bankrupt a government at any time.
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In the United States, Andrew Jackson, was the rare politician who sought to ELIMINATE America’s national debt; why? Well, because during the period of Andrew Jackson, there was no central bank, and the American project was dependent on market forces to keep it solvent, so if the American government owed nobody nothing, in Jacksons’ mind, it put America in a great NEGOTIATION POSITION.
You have to also remember during the period of Andrew Jackson(1829 – 1837), it wasn’t uncommon for a nation to be INVADED by a hostile nation, and if America was broke or indebted to other nations, it wouldn’t be able to finance a war to defend itself. Although I’m not a fanatic for central banks, I think it’s important for the reader to comprehend some of the reasons why there was a DEMAND for a central bank that has the powers central banks enjoy today.
It should be noted that money throughout history has been all sorts of things; silver and Gold, sea shells, paper notes, certain foods; money can be anything the MARKET is willing to accept or HOARD. Money should be liquid and accepted as trade anywhere; it should also, and most importantly, HOLD ITS VALUE, and this is where the central banks come into play.
Bank of Canada expected to raise interest rate this week | cbc.ca
The Bank of Canada is expected to raise its trend-setting interest rate on Wednesday, the sixth increase this year. The bank’s key interest rate has increased from 0.25 per cent to 3.25 per cent since March.
When the U.S abandoned the Gold Standard and the U.S dollar became “a rule by Fiat dollar”, humans NATURALLY wanted to attach the value of the U.S dollar to something, so the PETRODOLLAR was born. Why people began calling the U.S dollar, the PETRODOLLAR was because of the IMPORTANCE Oil had to the U.S economy. The industrial revolution does NOT exist without oil/gas and other fossil fuels.
The standard of living we often take for granted doesn’t exist without oil, and once INDUSTRY began relaying information to the Federal government of the U.S of how important oil was to the U.S economy, the U.S made sure it did everything in its power to make sure OIL was priced in U.S dollars. Well, now it’s the year 2022, and the Climate Change Socialists, which are basically groups of people who imagine that the government should FORCE the private sector to adopt a Greener agenda, have declared WAR on fossil fuels.
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Sure, great, whatever; the problem with these climate change socialists is that the current monetary system was created not by government force but via NATURAL progression. I have yet to know a period in human history in which government regulations on productivity led to prosperity. Meaning that this green energy revolution is ACCELERATING malinvestment in the economy at an alarming rate, so much so that it’s causing economic DEFLATION.
With oil and fossil fuels one can imagine picking lemons, squeezing the juice from those lemons, and creating multiple derivatives from those lemons. This is why as an example, oil and gas stocks can pay dividends, there is a NATURAL demand for oil and gas, whereas with these green energy initiatives, which include Biomass, solar panels, and wind turbines, there’s a much smaller NATURAL demand and there really aren’t that many derivates that come from “renewable” energies.
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Solar and wind require silver, copper, oil, and gas; sure, maybe the air might be cleaner in the longer terms, and that’s still a maybe at this point because we tend to forget that China and other developing nations FINANCE the standard of living in the Western world and these third world countries are NOT adopters to this left-wing climate change agenda, meaning that even if air is getting cleaning in certain regions of the world, it’s because it’s getting dirtier in other regions.
China still has dirty air smog problems; why? Because PRIOR socialist ideas in western nations have given China a monopoly on PRODUCING things the world wants. I point this out because the modern environmentalist movement, from my vantage point, is ACCELERATING manufacturing jobs leaving Western nations. If these climate change socialists are successful, what you’re going to have in the western world are SERVICE SECTOR economies.
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Now, I like to write about Latin America, which in many ways is a service sector economy; it’s hard to build anything in Latin America or even Africa; why? Because the governments of these nations REGULATE productivity within their borders. If, as an example, I make the mistake of becoming rich in certain regions of Africa or Latin America, my business and I will become public enemy number one.
A similar story is unfolding in western nations; the climate change socialists are basically attempting to create a narrative that makes it appear as if capitalists are putting profits before mother earth. When I step back and look at it from the lens of common sense, I see a compromise of sorts unfolding, and this compromise will be DEFLATONARY and will be a hindrance on productivity; it wouldn’t even surprise me if nations start to SPLIT UP!
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As you can tell, I’m a liberty lover; socialists do not like Liberty; socialists want the government or a ruling elite to DICTATE to their subjects who is entitled to what. Under the guise of the climate change agenda, socialists will continue to push WESTERN PRODUCTIVITY overseas. This push will force the hands of the central bankers, who are ALREADY raising interest rates to combat ECONOMIC DEFLATION.
Now, I keep reading from people who say that we’re headed to a new monetary system, which could be true, but he who controls the MEANS OF PRODUCTION runs the world. China, for example, currently accepts that the U.S dollar is in demand, while Chinese manufacturing remains a huge player in the supply chains. This makes the two countries linked, now, although the climate change socialists can make life a living hell for America’s productive sectors, these climate change socialists have ZERO power or influence in mainland China.
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What I’m getting at here is that countries like Canada and the U.S are betting big on maintaining the strength of their CURRENCIES because if the value of the Canadian dollar as an example, falls, it’s game over for the Canadian WELFARE state, which is heavily DEPENDENT on IMPORTS from China. If you’re not following me here, if the Canadian dollar falls off a cliff, made in china goods just got more expensive and even UNAFFORDABLE; worst than that will be Canada’s INABILITY, based on its CURRENT regulatory framework to CORRECT the economic imbalances of UNAFFORDABLE Chinese made stuff.
If this sounds ridiculous to you, I will point out to you that many nations can’t afford a lot of things made in China, and these nations do not have the ABILITY to produce what’s made in China, LOCALLY. Once the climate change socialists plant their flag in the Western world, certain things can no longer be made in the Western world, meaning that the Service sector nation transition IN MANY WESTERN NATIONS will be COMPLETE.
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I’ve written about austerity measures and how long it will take for there to be an actual demand to shrink the size of the government. I have no answer to that question; in fact, I lean more toward like-minded people deciding to secede before the government shrinks. The petrodollar is in trouble, and a lot of people appear to be pointing the blame in other directions.
Hyperinflation is what I expect if the central banks make the mistake of going back to Zero Interest Rate Policy in the midst of all these climate change regulations. I actually initially thought the central banks, namely the Bank of Canada, would have gone negative; I was pleasantly surprised to see they’ve been raising rates; it at least shows me they understand what’s going on.
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But as you’ll notice, most people do not know what’s going on, including some Conservative politicians. If Donald Trump as an example, becomes president of the United States, he’d better make sure he destroys the socialist climate change agenda before demanding interest rates come down; in Canada, the Conservative Party hopeful looking ot be Prime Minister who has been critical of the central bank better have the plan to shrink government before he decides to hire a dovish central banker.
In the U.K, Liz Truss got EXPOSED, as she didn’t want to engage in Austerity, instead opting to keep the socialist climate change agenda and merely enact price controls and tax cuts. Unless you plan to slice government, don’t bother blaming the central banks! Because so far, at least, the Bank of Canada and the U.S federal reserve have been doing the right thing!
Interesting times ahead!