The Fondapol think tank has just published a report with the provocative title, "Whoever Pays his Debts Gets Richer". We must dare to use this age-old formula at a time when debt is exploding like never before throughout the world, and especially at a time of zero - or at least very low - interest rates: getting into debt costs nothing, where's the problem? Why repay? And Fondapol is not an obscure cenacle accepting only the worshippers of Hayek and the Austrian School and devoting a mystical cult to the gold standard, no, he defines himself as "Liberal, Progressive and European". We're in the mainstream, we're among good people in every respect.

But the light has shone on them: this mountain of debt is likely to lead to... inflation. Welcome to the club. Let's read what Christian Pfister, who works at the Banque de France and is also an associate professor at the Université Paris-I-Panthéon-Sorbonne and Sciences Po, and Natacha Valla, who works at the European Central Bank and is also Dean of the l’École du management et de l’innovation, Sciences Po, write (page 12) with our comments in square brackets:

"In recent months, however, there have been proposals to ease the debt burden through various subterfuges, often involving the central bank [we have discussed this]. This is a dangerous illusion. The mechanisms that involve the balance sheet of the authority in charge of issuing money and guaranteeing its value and viability are complex. A sovereign default on the securities held by the central bank that would be imposed on it, or a deliberate waiver of debt on the part of the central bank, where possible, would have mechanical consequences on the transfers from the central bank to the government, and therefore onto the taxpayer [Yes, after such a large loss of debt, the central bank, with negative equity, will have to turn to its sole shareholder, the government, and therefore the taxpayer]. Moreover, these stratagems would have monetary consequences, potentially very serious, on inflation [bingo!]. However, just as it is not possible to say at what point the public debt becomes unsustainable, it is not possible to guarantee at what threshold of deterioration of the central bank's balance sheet inflation would accelerate [indeed, it is illusory to foresee a threshold or a date for the take-off of prices]. Rather than engaging in a game of sorcerer's apprentice, it would seem more reasonable, where public debt has reached very high levels, to control it through traditional adjustment mechanisms, while minimizing the cost of these policies through the adoption of structural measures [100% in agreement].

Thank you, the followers of the Austrian School, of which we are a part, feel less lonely. Awareness is spreading, inflation is becoming an increasingly likely risk. It must be said that the European Central Bank is doing everything in this sense: the main states of the euro zone have issued 610 billion euros more than in 2019 to fight against the health crisis and its economic consequences, and as Les Echos reveals, the ECB has bought 95% of this amount!

Do we understand what this means? The ECB is substituting for the market. It's simpler that way, no need to convince investors, you print money and it's done. In this scenario, we are de facto witnessing the merger of the Treasury and the Central Bank: the financing of the government's deficit is directly connected to the printing press, money creation is in free flow. Technically, this is the mechanism of hyperinflation, a debt that costs nothing and that can be activated on demand, without worrying about the opinion of the markets or their capacity to absorb these obligations. It is a veritable crime spree for spending governments. Fondapol does not mention the means to protect oneself from this inflation, with gold at the forefront of the list, of course, perhaps for a future report?

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