Flares, disco, energy black outs – my vague young memories of the 70s. I certainly remember my family having rants about the unions. Indeed there was industrial strife in the UK, however, the real root of the inflation in the 1970s was due to the exorbitant costs of the Vietnam war that resulted in a US default when President Nixon closed the gold window in 1971.
Although there was rampant inflation in the UK in the 1970s it was also a period of economic stagnation so a new term was invented – stagflation.
Now it feels like we are back in the 1970s. Until now the QE (money printing) has gone almost entirely into the pockets of the super rich. This money printing has massively inflated the prices of stocks and bonds which are held by the 1%. As we can evidence, for example, in the US billionaires have seen their wealth increase 62% since the start of the pandemic. Elon Musk has seen his wealth increase 600%.
However, the enormous stimulus package which gave money directly to Americans was a game changer. This has caused an inflationary uptick in the general economy. Too much money chasing too few goods and services equals inflation, simple as that.
For months now shelves in food shops have become increasingly empty. Just in time supply chains are rather fragile when faced with a world breakdown crisis.
Everyone over 50 surely remembers the black outs we used to have when energy workers were put on a 3-day week. This was because Britain (a net importer of energy at the time) couldn’t afford the rising rate. Prices of oil had increased due to the 1973 oil embargo crisis. This established the petro-dollar.
How do recessions start? The answer is with bankruptcies.
Energy is again at the centre of the current crisis in the UK. The government has held emergency meetings as British people were looking at price rises of over 100%.
About a decade ago the Conservative government ‘reformed’ the energy sector allowing a whirlwind of small companies. These have now been falling like flies. My own parent-in-laws have just lost £200 (a lot of money to two pensioners) as their provider has gone under. They’ve now been given a bill for £250!
Part of the problem has been the difficulties resulting from moving towards wind turbines. These are no way capable of providing enough energy for the UK. Plus Russia has been stocking up gas for their own citizens this winter so less has come through to sell in Europe. What has come through then gets bid up by inflated budgets due to QE.
Due to these increases an American firm CF Industries, a fertiliser and Co2 provider, has decided to halt production in the UK. It’s not the only company complaining about high costs and low profitability.
This has come at a time when the British government, not breaking with tradition, have decided to make the workers pay for the crisis. Meanwhile, the rich have seen their wealth increase, the tax increases are not aimed at redistributing this wealth.
It could be a cold winter
In October the extra £20 provided to recipients of Universal Credit is due to end. For someone under 25 this will cause a 25% drop in their income. At the same time the 80% wage furlough scheme is also coming to an end in early October.
In addition a flurry of tax hikes are proposed for next April, including a 1.25% increase for National Insurance (NI). However, from 2023 there is a plan to create NI as a separate pot just for health and social care. Due to a decade of austerity most local councils are also suffering. Indeed, Croydon Council can be added to our list of bankruptcies.
Prices
Over the last decade there has been a notable Shrinkflation in the UK. Now the deals are disappearing. Chocolate, once 2 for £1 is now 2 for £1.50. Prices have gone up at cafes, but at the same time many menus are shrinking.
Even the Bank of England has said it expects inflation to be above 4% by the end of the year. Having rebranded inflation as a target as opposed to a ceiling rate.
The Bank of England can’t do anything about this inflation. They know they can’t raise interest rates without imploding the entire debt based system. They also can’t stop QE because all the money printing is what’s keeping the edifice of a collapsing economy up.
They will continue to hint about the possibility that they might consider tapering if all the conditions are right. It’s just talk. They have been saying inflation is just transitory, and now they are saying its a bit less transitory.
It’s hard not to conclude that we are indeed heading back to the 70s. I hope we get a return of disco.
