Stagflation: The Worst of All Worlds for the People, The Best of All Worlds for Giant Corporations?

There are many myths that people carry with them throughout life that they learned in business school, or sometimes, if they did not study business in school, simply by watching “news” shows that hinder their ability to act proactively to engage in self-preserving behavior and that cause inertia that allows the parasitic class to suck them completely dry. Here are some of these myths below:

  • Central Bankers are here to stabilize the purchasing power of your domestic currency.
  • Central Bankers do not execute policies that create massive price distortions and are not responsible for every asset price bubble and implosion since their inception.
  • Central Bankers’ act of creating fiat currencies from nothing, and trillions of fiat currencies, does not cause soaring prices of goods and services, but soaring prices of goods and services is the cause of inflation.
  • Stagflation does not hurt people’s quality of life because the soaring prices of some necessities of life (food, electricity, etc.) are offset by the plunging prices in other areas of life (oil, etc.)

As you can see in this recent article I published regarding US Central Bankers buying up anything and everything on their already absurdly bloated balance sheet to ensure that major US banks do not fold and go bankrupt, I don’t know how any person can glance at the chart of the US Central Bank’s balance sheet in that article and not conclude that the Central Bankers’ monetary creation of trillions of US dollars out of nothing to prop up prices of assets owned by the billionaire class will not eventually create massive inflation down the road. Since I have covered the first three points ad naseum over the last fifteen years I’ve been publishing my news site, I’m going to focus on the fourth point in this article.

Recall that a price of a barrel of crude oil fell off a cliff from July 2008 in about half a year from $150 a barrel to just $33 a barrel by February 2009 while liquid natural gas plummeted from $14 to just $4. Even so, back then, major US utility companies like Pacific Gas and Electric (PG&E) steadily raised utility rates for customers, widening their profit margins instead of passing on savings to customers. In this Bloomberg article, written about this situation back then, the massive monopoly utility companies rationalized their rate increases to customers during record low prices for energy resources by stating that it had nothing to do with greed and fleecing their customers, but that they needed to charge customers more, even though plunging oil and gas prices obviously increased their profit margins significantly, because they were investing in infrastructure and needed more money for CapEx spending. This explanation seemed hollow, when years later, failure of outdated and improperly maintained transmission towers and infrastructure of PG&E was determined to spark massive wildfires in several locations in California. So not only did PG&E not upgrade their infrastructure, as many US utility companies claimed as the reason they needed to raise rates for customers at a time their own costs were plummeting, but it appears they even failed to properly maintain the infrastructure they already owned.

And even though the definition of stagflation is the combination of the simultaneous presence of weak economic growth, high unemployment and high inflation, often stagflation is presented by the press as not such an ominous condition because corporations can increase profits by downsizing, laying off workers and increasing profit margins even under stagflation. What they almost always fail to discuss is the fact that stagflation presents the worst of all worlds for citizens. Often, not only are the plummeting costs of certain sectors never passed on to the end consumer, but often, giant corporations don’t even maintain steady prices, but increase prices because they cannot resist the opportunity to fleece end consumers even more.

Consequently, just because oil prices plummeted, this does not mean the end consumer will receive any benefit from plunging energy prices produced from a weak economy under stagflation conditions.  Because transportation is one of the major costs of bringing food to the end consumer, plunging oil prices should result in lower costs of food, all other factors being consistent. But even so, history has shown us, when all other factors have been reasonably consistent, plunging energy prices often are not passed on to the end consumer in the form of lower food prices. So, what should happen is a very different equation from what really happens. However, during conditions in which energy prices soar, we almost always observe soaring energy costs passed on to the end consumer in the form of not only rising utility bills, but also in rising food costs and rising costs of nearly all other goods. And if giant food and product conglomerates don’t wish to overtly raise prices of the items they market and sell during periods of rising energy costs, they will execute clever marketing schemes to covertly raise them, designing clever packaging that hides the fact that they are providing us anywhere from 10% to 20% of less product for the same price through a practice known as shrinkage.

So in the end, there may be stagflation in the greater economy, but generally, the citizens almost never significantly benefit from any sector that produces lower costs due to a weak economy, and sometimes even suffer higher prices from the aspects of the economy that are plunging in price, while simultaneously being bombarded by higher inflation in the overall economy. So while stagflation may provide some benefit for giant corporations only, just as the giant conglomerates like Amazon and Walmart benefited by the billions in profits while small businesses went out of business forever during the global pandemic lockdown, stagflation almost always means an onward march in inflation for all aspects of life for the common citizen. So as Charles Dickens wrote in The Tale of Two Cities, “It was the best of times. It was the worst of times.” While stagflation can result in the best of times for giant corporations, the best of times comes at the expense of the common citizen, for whom it is the worst of times.

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