How monetary anarchy experienced by Western economies may still go unnoticed by economists and the general public? The decade preceding the crisis has been the scene of all the excesses in the United States, Great Britain and the eurozone. Between 1998 and 2007, money supply M1, which is to say, coins, notes and money on current account, grew by nearly 10% per year, an increase of 131% in 9 years. Monetary growth worthy of booming economic area in total contradiction with the slow growth before the crisis. These are 2.13 trillion that were created. The following table shows the gap between the impressive growth of nominal output of goods and services and growth in money supply:
How can we reasonably believe that such a monetary growth this can have no unreasonable impact on the functioning of our economies? Classically attributed to excessive growth of money supply two major consequences: a high price inflation and distortion prices and the distribution of wealth. That's exactly what happened. Let us concentrate on the case of France.
price inflation of goods and services between 1998 and 2007 was only 18% according to Insee, and GDP grew by only 26% during the same period. A superficial analysis thus leaves thinking that the explosion in money supply has not had an inflationary impact which might have been expected. However, a point is regularly overlooked by most analysts: the currency has an impact on asset prices. Until proven otherwise, is still with money that you buy a property, shares or gold. There is no reason suggesting that strong growth in money supply have no impact on asset prices. They have exploded during this period at rates totally disconnected from economic growth.
An indicator highlights the extraordinary inflation, household wealth, which aggregates the amounts of all assets held by the French (real estate, stocks, bonds, money in the bank ...). According to INSEE, the French heritage would have thought 138% between 1995 and 2007. 138% in 12 years, a growth worthy of India or Brazil in a stagnant economy. To me, the conclusion is obvious: the explosion of money supply during the decade preceding the crisis has resulted in a sharp inflation in asset prices.
This inflation has had several important consequences: 1
A high price distortion : asset prices rose sharply compared to the prices of goods and services and wages
2 Strong distortion wealth: those who have assets have seen their wealth rise sharply without reason, while those who have nothing have seen their incomes stagnate
There is not much reason to doubt. A strong asset appreciation benefits the wealthiest classes of society. For example, real estate represents about 60% of French heritage and has appreciated sharply between 1998 and 2007. Those without property were not well received on the increase. Those who own only their principal residence are also not benefited from this increase because they sell their home, they will also buy another whose price has also appreciated. Those are just the most affluent, those who have several properties that have benefited fully from this assessment. For non-owners, this has just made access to the property even more difficult than it was. We shall not dwell longer on stocks, bonds or precious metals held not classes.
short, while labor income has stagnated, the asset prices exploded unduly enriching part of society. The following chart shows that since the '70s, heritage the French turned around 4.5 years of income. This ratio has risen sharply from 1998 to nearly eight years of income in 2007.
This high inflation and this crazy distortion of wealth have not spilled much ink. But the signal sent by this movement was clear: wealth, better speculate on asset prices than work. In less than 10 years, almost 2,130 billion euro have been created in the euro area by our monetary system implausible, more than the annual GDP of France. A large portion of that money went to the emergence of huge speculative bubbles.
Anarchy money has exacerbated inequalities and made even more tense social relations in our country. The lessons of this period have they been included? Far from it. The machine is distributed, our hundreds of issuers have recovered cash to work. After growth of 13% in 2009, we are entitled to a 9% growth of M1 in the first half of 2010. The price of assets has reinvigorated, unemployment is highest, wages are stagnating.
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