CURSE OF INFLATION

As far as a few centuries ago it might have seemed that finance was magic. Alchemists suggested that it was possible to turn lead into gold and it was widely believed that money caused misfortune. People who owned a fortune were usually suspected of entering into a contract with evil forces. With the birth of capitalism, finance was disenchanted, stripped of its magic — it gained importance and became science. We came to conclusions resulting in the fact that money was no longer made from precious metals — gold or silver, as it used to be — but it became a product of modern finance. Today, fiduciary money is based on debt, so it is in the hands of the banking elites (the Fed in the US, the ECB in Europe, and the NBP in Poland) who set the price of the debt, i.e. the interest rate. If it is inadequate, maladjusted to economic conditions, then either, in the worst case of too high rates, we freeze the economy, increase unemployment and slow the development of the country, or in the case of excessively low rates, we witness another dramatic phenomenon of eating up savings and impeding investments by inflation. Its curse has returned to Poland after more than 20 years.

INFLATION: THE MOST IMPORTANT TOPIC

Inflation has been one of the most important, if not the most important, economic topic of recent months. It amounted to 7.7% in November, year-on-year compared to 2020, and is showing an upward trend. Such a state of affairs is the effect of the actions undertaken by the rulers, dictated by political calculation, aimed at remaining in power, and not by the interests of society. Insane year-after-year increases in the minimum wage, 13th and 14th pension repayments, the 500+ child benefit program, the tourist voucher, and, above all — control — over the representatives of the banking elite. In 2021, among the selected NBP elites, the number of “doves” preferring a gentle approach to debt has definitely been higher than the number of “hawks” — as a result, the NBP slept away the necessary period of interest rate increase and allowed the snowball to gain momentum. It is not a coincidence. Politicians in power have always preferred the low-interest scenario. Mainly because in good economic times more loans boost the economy more evidently. Moreover, in the short term, inflation may suit the state — it increases budget revenues and reduces the state’s liabilities to creditors. However, when we allow a speeding snowball to gain mass and speed, it turns into a destructive force — destroys savings, makes planning difficult and discourages investment. Inflation invalidates wealth, reduces productivity, and leads to a lower standard of living in society.

Of course, Poles are aware of inflation. Previously, they believed that social programs would help them get off their knees. Currently, they see, that for PLN 500 from the 500+ program from 2016, you can buy the equivalent of PLN 350 in 2021. Today, even building a house on one’s own account is like walking a rope stretched over a chasm — each next step is uncertain — plans and cost estimates have to be verified even on a weekly basis. Ultimately, Poles spend more, but the economic utility of their purchases is not higher. Especially since in times of such high inflation, they are increasingly more afraid of their own budgets, which is most rational, taking into account that no one is hiding it, that the forthcoming year will also mean increases in energy prices.

The government in Poland — and also other governments, for example in France — are trying to mitigate the effects of inflation as part of the anti-inflation shield, which most likely has been invented by PR experts, not economists. Subsidies to households are like trying to put out a fire with gasoline — they will only fuel inflation. Similar to the Polish Deal, which will come into force in 2022, it is an inflationary program — it redirects funds from savings, from the middle class to the poorest, who will spend them instantly on consumption, which will only stimulate inflation. It is a shock for society because the awakened consumption expectations boosted by the state are now colliding with reality — the weakening of the purchasing power of money. In the 21st century, we are still experiencing the magic illusion of monetary stability.