The Real Reason Behind The Surge In Populist Anger: Central Banks

In the din of the relentless theatrics of the US presidential election, and the soaring wave of global populist discontent blamed on a "us" versus "them" narrative, it is easy to lose track of what is not only important, but is the critical catalyst behind much of the build up in world anger over recent years.

Courtesy of Bloomberg's Chris Maloney, a market strategist and former portfolio manager, here is a much needed reminder of what is truly going on behind the scenes, an explanation for the rising sentment that something is now simply "broken."

Populism Surfs a Wave of Inflation
By Chris Maloney of Bloomberg

 

The Keynesian belief outlined in the “General Theory” (p.17), that “an increase in employment can only occur to the accompaniment of a decline in the rate of real wages,” appears to be bearing bitter fruit this election cycle.

 

The rise of populism in America is a byproduct of inflationary policies that have helped trigger a dramatic increase in consumer debt, declining real wages and rising prices for food and housing since 1999.

 

From 2000-2014, housing prices have risen 73% and rents were up 45%; the cost of putting food on the table rose 47%, and college costs increased 137%

 

Over the same period nominal real household mean incomes rose just 38% while declining 3% in real terms.

 

 

Consumers covered the gap in part by taking on more debt, with outstanding credit balances up 117% since 1999, which may have helped mask the rise in inequality that dominates the headlines today - and which has been brought to the fore by the inflation in credit engineered by monetary authorities.

 

Ben Bernanke warned of this when he wrote that inflation “induces redistribution of wealth” to the detriment of “less sophisticated investors” (Inflation Targeting, p.17).

 

This is no surprise as the working class and poor get any newly created money and credit last and hence “will find themselves compelled to pay higher prices for the things they buy, which means that they will be obliged to get along on a lower standard of living,” a point made by Hazlitt in his "Economics in One Lesson’’ (p.153).

 

This is what has voters up in arms, and the Fed’s adherence to its 2% inflation target forgets to remember what Dostoevsky’s “The Honest Thief” reminds us, “To poor folk like us, sir, every little counts."

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And now back to the narrative painted by the global media owned by a handful of giant multinational corporations, who benefit every single day from the same monetary policies shown above, and the endless distraction from what truly matters.

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