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Dealing with the Inflation Crisis

Inflation is caused by two things; the first is consumption, the second is supply. Consumption led inflation occurs when too many people want too much product so prices rise. This is because people are prepared to pay higher prices to get the product. The solution for consumption led inflation is to take money out of the economy with interest rate rises. This slows consumption and thus the inflation it caused.

The second version on inflation is supply led. Shortage of product, manufacturing, imports etc. leads to price rises due to a lack of supply of products. People pay more for what is available. This is not caused by an excess of cash sloshing around the economy, so raising interest rates has no impact apart from to drive inflation up further.

Less money in peoples pockets doesn’t help a shortage in supply. It lowers consumption becasue people don’t have as much money to spend, but the shortage of supply still exists. Rising interest rates just reduces our ability to pay all our bills, feed our families and fill the car with enough fuel to get to work so we can earn not quite enough money to get through the month.

The UK Government have been printing money since the 2008 crash. They never stopped. During covid they just ramped it up and threw many billions at furlough, bounce back loans, business grants and of course £37 billion on a track and trace app that never worked.

£37 billion. Many people don’t really comprehend how much money £37 billion is. Allow me to put it in terms that may explain it better….

1 million seconds = 12 days

1 billion seconds is 32 years.

Or, to put it another way……

1 Billion minutes ago Jesus was alive (almost)

1 Billion hours ago much of Europe was covered in Glaciers (Eemian Interglacial period)

1 billion Days ago man first walked upright

In short, 1 million isn’t all that much, but 1 billion is a massive number, often thrown about by politicians with little consideration. For our Government, a few million here and there is in UK GDP terms pocket change. But, we need to pay attention when they are talking about Billions. We need to pay attention when they write off billions of bounce back loan debts they can’t or won’t chase.

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It is our money and I don’t know about you, but I work quite hard to earn it. I pay a not inconsiderable sum to my Government to provide the services that society needs. I want my taxes to be spent responsibly, like it matters. At present it looks like it is being thrown around with gay abandon, without consideration for the tax payer.

To fix the current inflation crisis we need to address the supply shortages that we currently face. Taking money out of peoples pockets when they already can’t pay their bills is utterly nonsensical.

Globalism has been found wanting. Who would have guessed that shutting down the world economy for 2 years would lead to massive shortages?

We rely very heavily on China for much of our supply. They are currently pursuing a zero covid approach, leaving much of their economy closed. They have power cuts reducing capacity, lack of steel for containers needed to ship products. This has left their ports stacked with ships waiting to load, or unable to load because their load isn’t ready.

The knock on effect is product shortages across the globe. Additionally, the Ukraine war has taken much of Russia’s Gas and oil supply out of the mix, leaving more Countries fighting over a smaller supply of fuel. In the UK we currently have a glut of gas. We are piping gas to the EU (being the nice guys we are). Our current (mid May 2022) gas day price is low, around 1/10th of the EU current day price, but we are sold gas on the future market price, leaving a significant price gap which goes into the pockets of providers.

In some quarters they are pushing a Great Reset…… I think it is indeed time for a reset, but not in the way the WEF intend.

 

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