Explaining Today's Inflation – the Common Thread

By Thomas Neuburger

The most salient feature of today’s inflation is its ubiquity. —World Bank chief economist (quoted here)

If the wealthy had ever planned to save our species from the coming catastrophe, they'd be doing so now and we'd be watching them do it. —Yours truly, here

We seem to live in a world where the messages, at least the political ones, are few, repetitious, and have no effect.

Take, for example, Robert Reich's complaint above. There are several proximate causes for today's inflation, but the greatest — and least pointed out by the mainstream press — is simple greed.

You call customer service — anywhere — and the wait time is forever. Why? Too few people on the phones. And why's that? It's not a lack of people wanting to work. It's a lack of people willing to work for crap wages, coupled with too few employers willing to raise wages to attract them.

It is, in other words, a game of chicken between corporations and the labor market, with customers held hostage. Why does that work? Because the corporate "news" keeps telling us there's inflation everywhere, scary scary inflation, yet none of them is honest about why.

The Fed's Free Lunch, Available Only to Friends

Others are more forthcoming. Here are two takes on today's inflation, both of which lead to the same place. The first is from Jem Bendell, whom I featured recently for his work on "deep adaptation" to the climate crisis (see "Climate Collapse & Adaptation" for more).

Bendell wrote the following in a piece called "Responding to Inflation From a Pandemic of Quantitative Sleazing." ("Quantitative easing," the term on which he puns, refers in this case to central banks, like the Fed, backstopping corporate profits by purchasing corporate bonds, in effect making sure that no bond offering goes without a buyer. This is like you going to the bank and the government giving you the money if the bank won't, or if the bank's interest rate is too high.)

The subtitle of Bendell's piece is:

An Essay on How Central Bank Purchases of Corporate Bonds at a Vast Scale has Changed the Nature of Monetary Systems - and what you can do about it

Can't get much plainer than that. Now from the piece (emphasis mine throughout):

Some mass media blame oil prices for inflation, so they can complain about environmental policies. Other media blame Russian foreign policy for inflation, so they can complain about a bad foreign leader. Whatever their angle, the mass media have been avoiding the real cause, which is a seemingly corrupt agenda from the largest Central Banks of the world to hand out money to the largest corporations in their countries since the start of the pandemic. Although there have been some gentle and intermittent grumbling from the financial press about the handling of this gushing company cash geyser that is the corporate bond buying by Central Banks, a systematic condemnation of this practice by economists, journalists, politicians or even trade unions, has been absent.

And no, Vladimir Putin is not to blame:

Inflation is a serious problem for people who do not have surplus income or appreciating assets. Which, worldwide, is the majority of us. Therefore, after a few months of people saying it is just a ‘blip,’ it demands an explanation. At the time of writing, the most favourite one is to blame the Russian leader Vladimir Putin. The problem with blaming the Russian invasion of Ukraine for the rising prices for all kinds of goods in most countries around the world, is that prices were up worldwide many months before the invasion.

As Bendell points out, the fact that inflation is happening everywhere implies a global and systemic cause, which he takes to be government lending to corporations. Here's the relevant section. Read carefully; it's dense but not opaque (my paragraphing below):

[T]he largest companies in a country are handed money by an organisation that creates it from nothing [the Central Banks], in return for a contract that says the companies will pay it back in future.

When this process started there were some complaints from think tanks that questioned whether it was in-keeping with a Central Bank’s climate commitments to hand money over to companies in the fossil fuel industry (Barmes et al. 2020). There was also the concern that this bond buying would favour certain companies over others and the largest companies over smaller ones. However, the process has continued largely unreported and uncontested in either political circles or public dialogue since 2020. Other Central Banks followed the lead of the EU, UK and USA, with Sweden starting corporate bond buying in September 2020 (Sveriges Riksbank, 2022) and others since then.

In the US this new money issuing mechanism went to an even larger scale, where the Central Bank purchases shares in investment funds that are comprised of bonds issued by various corporations. Since the money goes to the corporations with bonds in those Exchange Traded Funds (ETFs), a crucial role is played by the financial institutions that pick which corporations’ bonds to include in the ETFs.[3] In most cases the financial institutions packaging the bonds into ETFs own shares in the very companies that they are enabling to receive central bank or government money: these are the largest investment firms in the world (Ahardane 2016).

The sums involved are huge, such as US $500 billion in the initial mechanism by the US Federal Reserve launched in March 2020 and managed by BlackRock. That was part of a massive injection of money into the financial system (Marte 2020). Between mid-March and early December of 2020, the US Federal Reserve’s portfolio of securities grew from $3.9 trillion to $6.6 trillion. The Financial Times (FT) reported on “a frenetic pace of issuance” of corporate bonds for the following year after the new central bank policy (Rennison 2021). In 2021 the global corporate bond market stood at over US $40 trillion, aided by the changes in Central Bank policies in 2020, ‘in response’ to the pandemic (Wigglesworth and Fletcher 2021).

This, of course, led to a bull market in BlackRock's other ETFs: "The immediate effect was for private investors to invest billions of dollars in Blackrock’s other ETFs 'as investors raced to front-run the central bank’s expected purchases' which showed 'how the Fed has already indirectly shaped markets to BlackRock’s benefit' (Henderson and Wigglesworth, 2020)."

Bendell worries in the rest of the piece that this indicates a sea change in first-world economies, "represents both a new backing and new mechanism for issuing new money" by creating "confidence in something relatively opaque." I'll let others decide the degree to which this is dangerous. It's sufficient simply to say that the scale of the corporate gifting is monumental. Look back at those numbers — $4.7 trillion (to date) in corporate backstopping, much of it via purchase of junk bonds to support struggling corporations like American Airlines and Carnival Cruise Lines.

Yet it's a point of pride that none of the benefiting corporations will raise wages, just as it's a point of pride that none of them will countenance unions in their shops. A free lunch for me, low wages for thee, or simply no wages at all.

Buying All the Wells in a Dying Town

At the other end of the explanation spectrum — explanation for the current rate of inflation — stand those who say today's inflation is caused by real resource shortages, which in turn is caused by something no one wants to fix — climate change.

Here's Omair Haque making that case:

So let me say it plainly, since our leaders are terrified of telling you ... This phase of inflation is about a dying planet.

Food prices rising — commodities prices in general — were a direct effect of climate change. So what about Putin’s war? Well, just think about what it’s really about. Controlling resources. Putin knows that if he controls the resources — oil, gas, metal, wheat, and so forth — he can control a dying planet. He who controls the resources controls a dying planet, because we all need them that much more. You can see this very, very clearly in the way that Putin’s skewered Europe right on the horns on an insoluble dilemma [i.e., allow Putin to invade Ukraine or oppose the war and give up Russian resources, like oil and gas]. ...

We are therefore now entering an age of a) resource wars b) shortages and c) inflation [because the] flipside of shortages is ... inflation.

This is a different view of systemic change than Bendell's, but it's systemic change nonetheless.

Implicit in Haque's discussion is a sobering fact: No in power wants to stop the collapse. They just want to get in on the grab, to get the most they can before the resources of the earth disappear completely. What do the wealthy do when water grows scarce? They buy up all the wells. Greed again, in service of only themselves.

The Common Thread

These two explanations can both be true; neither excludes the other. But note the common thread: the race by the already wealthy to secure for themselves alone control of the planet's resources, financial or physical, to the exclusion of the 99.99%, the rest of us. That's a very small number of people, a countable number, screwing literally billions.

The greed of the already rich is the dominant theme of our times. This is not the wealth and opulence of ancient empires, states that when they rose and fell ruined only themselves.

This is the greed of a state — yes, corporations are the state — that, when it falls, will take the whole world with it.

And it won't just take down the financial world and the world of pretty things. It will take our climate too, our global habitat, leaving our species back where we started — gatherers of grain and fruit, hunters of meat-bearing animals, shrunk to a population so small that it poses no threat at all to the system we live within.

The destructive greed of the unstoppable few. I can't think of a single major story, political or social, that does not at its root contain this fact. It's almost boring to keep pointing it out.