Who is really driving inflation?
IT WASN’T difficult during my childhood to realise that a healthy cynicism to the data offered to me was actually, healthy.
Some news anchors or presenters make it easy to be cynical. Faced with a desire to be famous, or just noticed, they never challenge the narrative put in front of them, but this is serious given the fact that many opinions in society are formed by those same presenters with people who trust that source.
Take Trish Regan’s famous blubbering about how everyone in Denmark works for the government. Denmark ranked 12th in the world on economic freedom.
Syllable by syllable, an O’ level economics student could have ripped apart what she was asked to read. Instead, the $8m/annum salary news anchor, dramatically read out how Denmark was socialist, and finished, as no-one had any incentive to work. Most cats fell off the armchair around the world as she continued to ‘earn’ her vast salary, saying ‘something or other’.
This situation isn’t untrue in the UK either, with many earning close to half a million reading on a subject they have little or no expertise of.
That is not data, and is not to be relied upon in making decisions of any magnitude, so when the news begins with trumpets, trombones, sirens and flashing lights (as it does) consider it’s nutritional value.
So, if you understand the UK’s lobbying rules you will be horrified to note that their legislation doesn’t cover 80 per cent of the lobbying taking place. Two per cent not covered would be a big enough loophole for the institutions that effectively control economies.
Those set to gain by any price rising, or falling, can influence what makes its way to the sponsored press. Apparently now, the Ukraine war is the cause of inflation, despite the fact it’s been there for a while.
And so to 2008, when we had the headlines of ‘oil to hit $200 a barrel’ and ‘oil sharks sit off the Brixham coast awaiting oil prices to rise’. It was indeed, pure twaddle and I explained why, in two columns in June and October that year, and that inflation was not natural, and interest rates would fall, not rise. I took some flack during June to October until it all came home to roost.
Firstly, to set the scene, certain financial institutions can make money betting on prices falling or rising. The more volatile the better. Many of these, as I have explained before are the lobbyists, lobbying governments. Even worse than betting on a price, stock, share or currency falling, they can do that with such confidence that they borrow most of the trade to do so. If you are right about the price you win a multiple of your trade and vice versa. Are you starting to see the interest they may have in lobbying?
I explained at the time that the rules had been changed to allow over the counter swaps and investing on margin in commodities – oil, gas, maize, wheat etc. To explain: buying on margin meant you could put down just eight per cent of the trade, and over the counter swaps meant you could hide the trades (conflicts of interest etc).
Headlines blamed Iraq for the oil prices, China for using too much, attacks on Nigerian oil fields – the usual bogeyman stuff. Goldman Sachs said oil would go to $200 a barrel (it became my standard pub conversation) but they were neutral on Exxon mobile’s share price at the time. Something didn’t make sense.
Oil tankers were sat full off the coast of Louisiana and Iran – nowhere to go. Demand was low. Americans had driven 11 billion miles less than the year before. Gasoline demand had also fallen seven per cent in the UK.
Supply was high and demand plummeting. The cause however, related to the above loophole that allowed financial institutions to speculate on prices.
After lobbying, the 1936 rule relating speculators in the market allowed speculators to drive food and energy prices through the roof. There is evidence it is here again. More next week on that, but I ended that 2008 column with:
“I suspect it will be just in time for another twaddle excuse to be used to plummet the price shortly after the above financial institutions have bailed out with their designer parachutes”.
Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial question call Darren McKeever on 028 6863 2692, email email@example.com or visit wwfp.net