One year ago, I predicted inflation would surge. That an inflation surge would be engineered by our central bankers, I should say.
Today, the idea is mainstream. In fact, it’s official, with the Federal Reserve and European Central Bank both declaring it’s their intent to let inflation run above their legal mandate.
In the UK, where the government keeps a tighter leash on its central bank, the Financial Times reports just how worried the establishment itself is about the Bank of England (BoE) triggering a spike in inflation:
The Bank of England needs to provide a better justification for believing the rise in inflation is temporary, according to an influential parliamentary committee, which also queried the need for continued quantitative easing.
The House of Lords economic affairs committee, which includes former BoE governor Mervyn King, said on Friday that the BoE had failed to justify its flagship QE policy — the practice by which central banks seek to stimulate spending by creating money and pumping it into the economy by purchasing assets.
Lord Michael Forsyth of Drumlean, chair of the economic affairs committee, said that the bank “has become addicted” to quantitative easing, using it as the “answer to all the country’s economic problems”, and facing few questions despite its “eye-watering” size.
He added that there were “risks, given where the economy is, that inflation could take off” and while the bank says that it will be temporary, it should spell out “the plan if it turns out that is not the case”.
And remember, the Bank of England’s former chief economist anticipates inflation of 4% by the end of the year.
But the central bankers just keep on “printing” money (or, more precisely, creating it electronically)…
Central bankers have forgotten just how hard it is to get inflation back under control.
Which brings me to a story I want to tell you about the man who grabbed Inflation by the balls, literally.
Here’s how I began my July 2020 report about inflation’s comeback…
In 1976, the Austrian free market economist Friedrich Hayek made a visit to Australia. He’d been invited by a group of people, some of whom I know personally today. During this trip, he went to the Atherton Tablelands in North Queensland to see one of his host’s cattle farming properties.
Ron Kitching, the Mont Pelerin Society member, mining industry legend and cattle farmer later recalled the visit like this:
[Hayek] noticed hanging on the wall of the bar, a large picture of a magnificent Brahman Bull I owned. He asked about the Bull, so I told him he was a prize winning show bull which I had nicknamed Inflation as he would not stop growing. “He weighs 3,000 pounds in his working clothes,” I told the small gathering present.
“Well, while I am here, I would like to meet him,” Hayek exclaimed. So I put that on the agenda.
I got this bright idea that I’d put the bull in the yard, get a step ladder put Hayek on the bull, (if he agreed), and take a picture which would carry the caption Hayek’s on Top Of Inflation. I told my wife and that was the end of it. She would not under any circumstances countenance such a move. “What if the Professor fell off and was injured?” So that project was abandoned.
Nevertheless Hayek still wanted to meet the bull. Next day I took him down the paddock and took several pictures of him and the bull when another idea popped into my head and I quietly mentioned it to him. He was delighted to have a bit of fun. The caption of course was to be Hayek’s Got Inflation By The Balls.
Well the old boy was delighted. He was quite at home with animals and had palled up with the bull, which was an easy matter with this particular animal. So he posed and I took the picture. He predicted that if the Americans got hold of a copy, the picture would become famous.
This photo became so famous in fact that, years later, none other than Margaret Thatcher was presented with a copy of it. The photo shows her economic adviser and intellectual hero grabbing inflation by the balls, literally. Apparently she liked it. I’m not sure what Inflation thought of it, but he looks nonplussed.
Source: Ron Kitching
With help from Hayek’s economic theories, Federal Reserve chairman Paul Volker’s persistence and Thatcher’s balls, inflation was eventually brought under control in the UK and United States. And it has stayed that way ever since, with more fear about deflation and the bear market it threatens.
But this month’s issue is designed to prepare you for Inflation’s revenge. Because politicians and central bankers have grabbed Inflation by the tail instead of the balls, in the hope it would drag economies out of deflation.
But now they can’t let go without getting gored. Which means we’re in for one hell of a ride…
Do you think our modern central bankers would have the guts to grab Inflation by the balls?
If not, you might want to take a look at this escape hatch – a form of money which central bankers can’t print.
Editor, Fortune & Freedom