Households will face a massive loss of purchasing power in the months and years to come. We are talking about households in France, Europe and the United States, especially modest and middle class households, for whom "constrained expenses" (housing, transportation, food, energy) represent a large part, or almost all, of their budget. This sharp deterioration, obviously due to inflation, will be expressed mainly in the following areas:
- Energy, which is becoming more and more expensive, under the effect of the central banks' money printing (producers are protecting themselves from monetary laxity by increasing their prices), the energy transition (wind turbines must be subsidized, as well as the thermal renovation of buildings), and then the war in Ukraine and the sanctions that force the EU to find other, more expensive suppliers (American LNG, new contracts to be signed in a hurry in Africa and the Middle East);
- Food, whose prices are rising in the wake of food raw materials and the energy needed to produce or transport these goods;
- Real estate, whose price increases have been fueled by central banks' money printing since the early 2000s. Rents will follow;
- Cars, whose prices are rising because of increasingly stringent anti-pollution standards and, more recently, because of supply shortages (especially in semiconductors). This can also be seen in second-hand models. Electric vehicles are not immune to this because of the rising price of raw materials (nickel, lithium, cobalt, rare metals);
- Savings (bankbooks, life insurance), which are losing value because of inflation that is much higher than the yield on sovereign bonds, even if interest rates are rising a little (but not enough, far from it).
Faced with these price increases and savings that are melting like snow in the sun, how can governments react? Indexing wages to inflation, as in the 1970s, seems extremely unlikely, as it would undermine the competitiveness of companies exposed to international competition. Instead, we should expect a distribution of vouchers ("inflation", "food", "energy", "culture", etc.) and bonuses (thermal renovation, purchase of electric vehicles, etc.) of all kinds, allowing governments to extend their clientelist policies as never before. Lowering taxes is less measurable and offers few hooks for government propaganda. This will be paid for by public spending, and therefore by debt, which will accelerate money-printing and consequently inflation. There is no way out... But for the governments, the objective is just to hold out until the next election.
How will households react? Social discontent will explode, triggering the unrest that goes with it. The "social model" will be called into question. The divide between the middle and modest classes, on the one hand, and the more privileged classes of the metropolises on the other, will increase. This important loss of purchasing power, imperfectly compensated by government subsidies, will lead us into a recession. The savers who put their trust in physical gold will preserve their savings, but this is only individual behavior; the governments that benefit from the money printing press will not promote it! We are heading for troubled times.
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