Governments around the world are currently pumping money into the economy at levels never seen before in human history. Whether it be quantitative easing, excessive national debt or REPO rate rebalancing the economy is being manipulated in a dangerous manner.
Why keep tabs on inflation?
Because the official figures seem unrealistic, I created a simple price tracker for groceries, fuel, energy and housing costs. The aim is to provide a more accurate and unbiased independent inflation figure for the UK economy.
In the event of an economic downturn I believe that inflation could increase exponentially and the whole fractional reserve banking system could come crashing down.
What is fractional reserve banking?
Banks only have to maintain a 14% asset to book ratio. This means for every £1 that a person “lends” the bank, they can then provide £7 in loans and corporate bonds. This money doesn’t exist and if even 15% of the depositors demanded their money back the bank would not be able to provide it.
This is legal, even mandatory for banks as the government puts pressure on them to meet lending limits, again to prop up the economy.
What does this mean for the UK economy?
The combination of negative interest rates, unrealistic inflation, irresponsible banking is unsustainable. Sooner or later people are going to wake up to the fact that the Great British Pound is carries no more value than a Venezuelan Bolivar.
What can I do about it?
Expect an economic downturn but hope it never happens. Most economists wouldn’t argue that we can’t continue the greatest bull run in history forever. Our central banks are doing all they can to prevent a downturn but when it eventually does come their prior actions could make the situation worse as they have “used all their tools” with inflation rates already near negative levels and huge injections of quantitative easing.
Bitcoin fixes this. Buy Bitcoin here. Gold and gold ETF’s are another great hedge against economic downturns and hyper inflation for more traditional investors. Use an ISA if you are in the UK to protect your investments from tax. Inflation protected bonds and indices are also available and worth considering.