The Invisible but Very Real Tax of the Money Printing Press

In a long blog post, economist Patrick Artus, who heads the research of the Natixis bank, makes interesting observations on the current situation, especially on the printing press of central banks that are running at full speed. What are the consequences and threats?

He notes, first of all, that the risk shifts from debt (which is no longer a problem since it is financed without any limits by the central bank) to the money itself: "If the public debt is monetized, there is no longer a problem of debt acceptability, since the public debt issued is immediately bought by the central bank. The problem then becomes that of the acceptability of money". We have said this several times, but it is essential to be aware of this shift.

And the great threat is the "flight from money", a prelude to hyperinflation and the destruction of money, and therefore of savings. "In an emerging country, it's simple: savers buy foreign currency to get rid of the national currency, and the result is huge capital outflows and a sharp depreciation of the exchange rate." (Turkey or Argentina at the moment). "But in an OECD country with a reserve currency (United States, euro zone, United Kingdom, Japan), there can be no flight to another currency. There is then a considerable shift to other asset classes (real estate) and a very sharp rise in the prices of these assets".

The prices of these assets (real estate, stocks, bonds) thus become "too high", and this is normal: "If there is too much money in circulation, the acceptability of money by saver-investors must be restored, and to do this, other assets must be made less attractive. The prices of these other assets must therefore become too high". The trapdoor closes on the saver.

And these excessive prices are nothing more than a tax: low bond yields (of life insurance) "are a tax on savers, whose income from savings is getting lower and lower; abnormally high stock market prices are also a tax on savers, who have to pay too much to receive dividends later; high real estate prices are a tax on homebuyers, who pay them at high rates". Taxes that create a profound injustice in society: "These various taxes are particularly unfair since they affect young people, who have to build up assets to supplement their retirement, who have to buy a home."

The classic investments of savers (real estate, stocks, bonds) are thus too expensive, another way of saying that they no longer yield much, and they are subject to the risk of crashing since they are bullish, inflated with helium by the printing press. Is there a way out? Yes, and Patrick Artus evokes it, with gold and private coins (Bitcoin). As the latter still has a low capitalization (around 400 billion dollars, compared to more than 10,000 for gold), its price is much more volatile, which does not correspond to the idea of a safe haven. Gold, for its part, has an unrivalled track record in this category, it is simply number one. This is the best way to "flee" from money without going to an asset in a bubble situation, and thus risking collapse. Gold has been gaining ground for several months now, but not excessively so. It remains by far the best way to preserve the purchasing power of capital in the long term, and to escape this "invisible tax" that weighs on all savers. A word to the wise!