People are getting poor, they can’t spend, the economy is going down. Simple math



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According to preliminary estimates of the Czech Statistical Office, the Czech economy fell more than expected in the third quarter. It lost 0.6 percent year-on-year, while a drop of just 0.3 percent was expected. It should have shown zero growth quarter-on-quarter, but actually fell by 0.3 percent. What is behind the worse than expected results?

This is mainly due to the skepticism of ordinary consumers, unwillingness to spend. This, in turn, is greatly affected by high inflation, because inflation is so high that even rising wages and company profits cannot compensate for it. So people are getting poorer in real terms. And when people get poor, they can’t increase spending. And when people cut back on spending, the economy must shrink. Easy math.

As you say, people are getting poor. The real wage has been falling for seven quarters in a row, which is the longest in the history of the independent republic. I was interested in the fact that Czech real wages fell at the fastest rate among OECD countries. Someone has to be the worst, but why is the Czech Republic among the 38 most economically developed countries in the world? Is it a coincidence? Or, what are they doing better in the other 37 countries? And can the Fial government be held responsible, whose term of office completely overlaps with the drop in real wages?

Of course, this is no coincidence. It has to do with the fact that we also have one of the highest inflation rates. And the very high inflation is in turn a direct consequence of the very significant increase in the amount of money in circulation since the beginning of the covid years. The central bank pushed money into circulation for a long time, and also – and that’s the main thing! – the government. The trend was started by Babiš’s government, but Fial’s government continues it. So we have to hold both governments accountable. Both contributed to the fact that too much money was released among the people through state redistribution, and this caused inflation and impoverishment of the people.

In economics, there is a kind of law of conservation of energy that says that money cannot be made out of nothing. Actually, we can understand it in the way that the more money we give to people from other people, the poorer everyone becomes. And that’s because giving away from a stranger means someone’s turn. So the more money we give away, the more people we have to turn over money at the same time. And since we give money to those who cannot create themselves, and take it from those who can create values, the result must necessarily be the impoverishment of the whole society.

On Thursday, the Czech National Bank decided to keep its interest rates at their current level. On that occasion, its governor Aleš Michl reproached the government that increased lending to the state remains a pro-inflationary risk. “The condition for long-term price stability is a responsible budget policy and moderate wage development,” he stated. Since government politicians, according to all statements, do not admit that Fial’s cabinet would be fiscally irresponsible, isn’t this dig from the CNB governor somewhat out of line?

It’s dig is absolutely accurate and is exactly in line with what I’ve said so far. I said that inflation was caused by the previous actions of the central bank, plus the previous and current actions of the government. While the central bank has already turned around and done what it could to suppress inflation (I wouldn’t have acted differently in the place of the central bank in recent months), the government continues to put money into circulation. It continues to rob those who create money and continues to hand out inflationary money to those who do not create value. So the government continues to act on inflation and impoverishment of people as well.

Inflation is now falling not because of the government but in spite of the government.

On Tuesday, information appeared on the Energy Regulatory Office’s proposal to increase the regulated component of the electricity price by 71 percent. Within two hours, Prime Minister Petr Fiala responded by stating that for the vast majority energy prices will remain roughly at the same level as this year, and anyone who says otherwise is lying and spreading panic. How to navigate this conflicting information?

The Prime Minister let it be known that “the price increase will not be so dramatic because the important prices of power electricity are being reduced”. But that is not very relevant information. Yes, power electricity prices are falling now. But at the same time, several other factors apply:

First, last year the state spent 40 billion crowns on capping electricity prices. This year it was only about half, and currently most of the electricity is sold below the ceiling. From next year, government subsidies and caps will be completely abolished – even if electricity prices rise again. (And we suspect they will grow.)

Second, renewable energy fees will return again from January.

Third, payments for transmission system services will increase.

Fourth, according to the Energy Regulatory Office, the regulated component will increase by 71 percent from January, which would bring a price increase of over 1,400 crowns per MWh.

Fifth, we know that energies are interconnected. We know that when the war in Ukraine started and, as a result, Russian gas became scarce, electricity became more expensive, because expensive gas “had to” be burned in gas-fired power plants in Germany. (I mean, he didn’t have to, but before that the Germans shouldn’t have voluntarily shut down thermal and nuclear power plants as part of the Green Deal.) And at the same time, we also know that the conflict is quite possibly spreading from Israel and Gaza to other countries, and if this were to be confirmed and the escalation would continue, oil and gas will become more expensive again. Therefore, electricity would also become more expensive in Europe under such circumstances.

It is quite possible that at this moment one of the last options is to fix the price of gas and electricity before the price lists start to increase again.

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The world’s oldest and most widely used cryptocurrency, Bitcoin, celebrated its 15th birthday this week. A pleasant gift for its holders is certainly that since the beginning of this year, bitcoin has appreciated by about 110 percent from the January “bottom” below 17,000 dollars. What position has bitcoin won in its 15 years of existence?

Bitcoin has already slowly moved into the mainstream – or almost mainstream. And unlike other cryptocurrencies. There are other, more innovative and technically advanced cryptocurrencies, such as cardano, but bitcoin enjoys the largest market capitalization and thus has a fairly stable position, at least temporarily.

But at the same time, Bitcoin also inspired central banks to introduce so-called CBDCs, i.e. central bank digital currencies. Which is a huge risk. Central banks feel that cryptocurrencies are a significant competition for their fiat currency, so they are slowly and stealthily trying to eliminate cryptocurrencies and instead come up with their own variation of cryptocurrency, which, of course, threatens to introduce Big Brother.

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The Ministry of the Interior called on the public on the X social network for people to report possible illegal or dangerous behavior on the networks. “You can contact the police, the Safety Line or other institutions and organizations for protection and security,” the department said. “I can’t help myself, but this is starting to remind me of a normalization atmosphere, Austrian minister,” responded MEP Jan Zahradil (ODS). Aren’t these unnecessarily strong words, after 34 years of living in freedom?

It doesn’t start to remind me of a normalization atmosphere, it reminds me of it a long time ago. They are not strong words, they are precise words. It invites bigotry, it tries to create the impression that some views are more correct. It is a very dangerous trend.

Retirement with full pockets or the future revealed

Vladimír Pikora and Markéta Šichtařová

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author: Jiří Hroník

The article is in Czech

Tags: People poor spend economy Simple math


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