Taps Coogan – September 2nd, 2020

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Daniel Lacalle, Chief Economist at Tressis Gestión, recently spoke with NTD News about central banks’ nonsensical inflation policies. Stating what should be obvious to rational people, Mr. Lacalle notes that actual consumers don’t delay purchases when prices drop. To the contrary, it’s inflation that pinches consumer spending and forces them to cut back.

 

Some excerpts from Daniel Lacalle:

“There is a case for moderate deflation… We need to understand that the reason prices are coming down is not because… households are choosing not to consume. It’s because the economy is weak, or there is over capacity, or the companies (producing goods and services) are being more efficient. Prices coming down is something that no consumer has ever been worried about… I have never seen someone come out of a gas station and say ‘Gas prices are down, I cannot accept this.'”

“Central banks want prices to rise and inflation to go up. Why? Because they believe that will sort of dissolve debt via inflation and that happens only for governments. An average household, myself, a company, does not reduce its debt burden because of inflation… The things that we purchase go up (in price) and the things that we earn go down in real terms…”

Consider this: You go to the market and the price of your favorite cut of beef has doubled. Are you going to buy more of it simply because the price is rising? Of course not.

Now, imagine that the price has been halved. Are you going to buy less of it simply on the hope that it will be even cheaper next month? I doubt it.

Yet, ask a central banker those questions and they will answer that you will buy more if the price rises because you will fear that it will rise even faster in the future and that you will buy less if the price goes down because you expect the price to fall even further in the coming months. They believe the same of your purchases of healthcare, education, housing, gas, etc…

It is obvious to any rational person that ‘Average Joe’ will not be buying more goods and services if prices rise. ‘Average Joe’ will cut back on non-essentials and substitute essentials with cheaper quality products because, as all of human history has shown us, when inflation rises as a result of excessive monetary stimulus, wages lag prices and average people suffer.

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