Question: I like Saint Germain’s answer about the gold standard but I would like to pose further questions about inflation. I could see three ways to create inflation which effectively all means something for nothing. First, government creates a deficit and overspends. Second, commercial banks create new money, loans for unproductive purposes, consumption, speculation, specifically houses as it seems to be one of the most popular speculation games where the public also broadly participates. Third, companies, individuals have a monopoly or create a cartel and charge too much. Example, current speculation with energy and food. I am not sure whether there are more ways to cause inflation but it leads me to a further question arising from the third example. What is a reasonable just profit from participating in the economy? I suspect it can vary but there should be some guidance. Also, when the government overspends does it need to be inflationary when the overspend is used for productive purposes like building infrastructure? It seems to me that creating money for productive purposes should not be a problem as long as it is paired with work and the result of that benefits society in a positive way. Creating new money by the commercial banking sector for buying the right to live somewhere, meaning existing property, does not apply to the new builds, does not create new value apart from the administrative work needed for the purchase. (Kim: I am skipping certain things because it is such a long question you can always read it.) Is inflation the only transfer mechanism for how the work loses its value and the transfer from many to few is done? Will interest be part of the money system in the golden age? (Kim: The problem with a question like this is that there are several questions into one. It would actually be much better to have it divided up into separate more specific questions. But since it is there, I’ll keep going.) Is it not so currently in the economy that you first create money and the work creation of value follows? I know that the whole thing is further complicated by the fact that at the present time when people are repaying the loans the money gets destroyed and there must be replaced by the new loan for the economy to function at all. Money supply consists of over 90% loans and 10% notes. Not to mention the interest which is repaid together with principal but is not created with the original loan. Please comment and sorry for the long winded question.
Kim: Okay, so just to rephrase this a little bit. The essence of it was how much profit is reasonable and are there other things that create inflation besides the one mentioned.
Answer from Ascended Master Saint Germain through Kim Michaels. This answer was given during the 2023 Easter Webinar.
Well, what you have in the world today in most of the modern nations, the more affluent nations, is you have an artificial economy. I have talked about it in several dictations. You have a gambling economy, I have said. You have a perception-based economy. And the reason why you have this is, of course, that the fallen beings have created this economy because it benefits them. They can drive the economy in various ways. They can, as you can see currently with energy prices and commodities. They can artificially drive prices up by creating either an actual shortage or just a perception of a shortage. As soon as there is a perception of shortage, speculators will instantly buy either the products or the futures because they think they can sell them later at a higher price. These speculators are driving the market up. And this is never a reasonable profit in a democratic nation. It cannot be construed as being reasonable because the only people who can drive the market is the small elites that are in control of the financial system. And it can never benefit the population. Artificially raising prices beyond what is reasonable based on production and distribution can never be a benefit for the population. And in a democratic country you should never have any aspect of the economy that is a detriment to the population and only benefits a small elite.
Basically, you can say that any economic endeavor that funnels money away from the population and into the hands of a small elite is not a reasonable profit. It is not a democratic activity. Why? Well, because look at, in the United States, for example, whenever there is a beginning of a depression, what do they always say? Oh, consumer spending makes up two thirds of the economy. In other words, what drives the actual economy, the real economy, which is based on producing a product, providing a service and marketing it, selling it, distributing it, that real economy is two thirds of the actual economy. And it is driven by consumers spending money. Well, what then is the last third of the economy? Well, it is the speculation economy that is driven by the elite.
If you look at it this way, you can say, what could create a crisis in the economy? How do you ever have a crisis, an economic downturn? Well, as you saw in 2008, it was not consumer spending that created the crisis. It was the power elite speculating in all of these mortgages, giving out mortgages that should not have been given out, but then packaging them together. And what they did in the years up to the crisis was, as you mentioned, they artificially drove real estate prices up.
What did that do? Well, now you can say consumers were still spending money, but a lot of the money was not going into the economy because it was not going into buying products. It was going into paying mortgages and interest to the elite. In other words, as real estate prices went up, a greater part of the consumer spending was funneled to the elite, thereby taken out of the actual production economy, and you had an economic crisis. You also had, of course, a breakdown of the system because it is proven over and over again that speculators can never say stop. They can never resist a short-term profit, even if it risks a long term downturn of the economy or a crash of the system. They cannot stop themselves. This has been proven over and over again. And, of course, this is not democratic either.
One of the factors that creates inflation is, of course, speculation.
But interest rates, interest payments also create inflation because when interest rates and speculation is funneling money upwards towards the elite. And what does that do? Well, what did I just say? Consumer spending is two thirds of the economy, but that means that there must be people who are spending the money they have. But when you look at the elite, there comes a point where you just have so much money, you cannot possibly spend it on personal consumption. What do you do? Well, you invest it.
There was a time, if you go back several decades, where there was a power elite like today, and they were funneling money towards themselves. But most of the investments they made were in production companies, companies who actually produced a product, produced something of real value. But since the deregulation of the financial industry as a result of the neoliberal philosophy, the elite has more and more invested in financial instruments. And financial instruments do not finance production or consumption. They are just accumulating more and more money, or rather numbers, on some computer server somewhere, so that this power elite can feel they are richer and richer. And they could never lose all of the money, they hope, so they will always be okay. And this becomes a never-ending game of accumulating more and more money on paper, or rather on a computer hard drive. And it is taken out of the real economy, and it does not finance the real economy.
If the power elite spent all the money, it would not produce inflation. It would not be taken out of the economy, but it would still of course be undemocratic to have a few people spend all the money instead of having the entire population have a decent standard of living.
Why is it that concentrated money in the hands of a small elite creates inflation? Well, as I said, there comes a point where you cannot really spend more on personal consumption. So what do you do? You start buying things based on speculation, the hope that they will go up. You take houses. Why, when you have one house, or maybe a couple of houses that you live in, why are there rich people who have owned many houses? Well, it is because they hope that the prices of houses will go up, and they can sell them for more than they paid for them. And what does this do? It drives prices up. You also have rich people who decide: “I want a yacht.” Well, this does create some kind of production, but still, they are willing to pay more for it than people who have less money. The same goes for houses, luxury items of all kinds, travel, this and that. In other words, you have created a group of people in the world who have more money than they need. They do not have the money to actually spend it. They may be buying a house or a yacht, but they are not buying it to have it or to use it. They are not buying it for practical value. They are buying it because either they hope to make money on it, or they are buying it because having it gives them status. If you have a bigger yacht than that other billionaire, you have more status than him.
That means what? That means you have so much money, you do not care how much money you are spending. You are willing to spend more for certain items. And what does that mean? It means that prices of everything gradually go up. There is an upward pull where those who have unlimited amounts of money are willing to spend more for a product than it is worth, more than it costs to produce it. And this is an effect that gradually filters down, not that it is the only cause of inflation, as you mentioned, but it gradually filters down to where prices of many items have reached a level that is out of proportion to what it costs to manufacture the item. This is, of course, especially the case with real estate. But another example of this—an extreme example of this—is paintings, paintings by artists. Why is it that while an artist is alive, he might be starving because nobody wants to buy his paintings, but as soon as he dies, the price goes up. It is because, now, there cannot be any more paintings coming from that artist, so those who have them can make money because it is the old supply and demand. If there is a demand but no supply, prices will go up on the remaining items. You look at a painting by Monet, who was relatively poor and unrecognized in his lifetime, and today it sells for a hundred million dollars. But what did it cost him to paint that painting in terms of the cost of the canvas, the oil paint and the time he put into it? It might just have been a few dollars. And now the price has been inflated to a hundred million dollars? And you see this throughout the economy, and therefore again, if you allow an elite to accumulate money, to concentrate money in their own hands, that in itself will also be an inflationary factor among others.
Copyright © 2023 Kim Michaels