Unmasking the Inflation Con

How the Financial System Enriches the Few While Burdening the Many (And What We Can Do About It)

In recent decades, we’ve seen prices for essential goods, especially housing, skyrocket, while wages have stagnated. At first glance, this might seem like a natural outcome of economic forces, but upon closer inspection, it becomes clear that the rising costs we face are not simply the result of market dynamics, but rather the product of a manufactured system designed to benefit the financial elite.

The Inflation Con: How the System Works

The narrative around inflation often centers on increased consumer demand, but the reality is far more complex — and far more concerning. Here’s why:

1. Banks Create Money When They Lend: Most people believe that central banks like the Bank of England control the money supply. In reality, private banks create the bulk of money in the economy when they issue loans, including mortgages. This "debt-based" money creation has significant implications. When a bank lends you money to buy a house, it doesn’t pull that money from its reserves — it creates it on the spot, adding to the total money supply.
2. Interest Drives Inflation: The interest rates charged on these loans not only profit banks but also drive inflation in asset prices, particularly in real estate. When people borrow money to buy homes, the increased demand pushes up prices. As interest rates rise (whether set by the Bank of England or as a response by commercial banks), the cost of loans increases. This, in turn, drives up the prices of goods and services — a process known as cost-push inflation.
3. The Self-Perpetuating Cycle of Debt and Profit: As the cost of borrowing rises, banks profit from the higher interest payments. Consumers, however, bear the brunt of this, with higher mortgage payments and loan costs. In effect, the inflation caused by interest rates benefits banks while squeezing the average person. And as inflation rises, central banks respond by raising interest rates even further, perpetuating the cycle.
4. Wage Stagnation vs. Asset Inflation: While asset prices (like housing) soar, wages remain largely stagnant. This mismatch creates a situation where the cost of essential items, such as homes, outpaces people’s ability to afford them. Over time, this leads to unsustainable levels of household debt, trapping future generations in an increasingly unaffordable economy.
5. Housing as a Speculative Investment: The housing market has become a prime example of this inflationary spiral. Take, for instance, the fact that homes bought for £12,000 in 1968 are now "worth" £540,000. While this might seem like a profit on paper, the truth is that all homes in the area have similarly inflated prices. If you sell, you still need to buy at the new inflated rate, creating no real gain for individuals. The real winners in this scenario are banks and investors, not homeowners or future buyers.

The Financial Elite Benefit While the Public Suffers

Who profits from this system? The financial elite — primarily banks and wealthy investors — benefit from inflation in assets like housing. When inflation rises, those with existing assets see their wealth grow, while those without are locked out of the market or forced into debt to participate.

Meanwhile, ordinary people face rising costs of living with stagnant wages. They must borrow more to afford homes and basic necessities, further enriching the banks through interest payments. Inflation, particularly in high-cost items like housing, is not a natural phenomenon; it is a product of financial policies that disproportionately serve the interests of the few at the expense of the many.

The Problem for Future Generations

The housing bubble we see today is unlikely to burst anytime soon, meaning the situation will only worsen for future generations. As housing prices rise, homeownership will become even more inaccessible. This could lead to a future where the majority of people are perpetual renters, subject to rising rents, while wealth continues to accumulate in the hands of property owners and financial institutions.

Intergenerational inequality is becoming entrenched. Those fortunate enough to own property today may pass it on to their children, but those who cannot afford to buy will remain locked out, increasing the wealth gap over time. This is unsustainable, and unless action is taken, the consequences for social and economic stability could be severe.

Potential Mitigations: Radical Solutions for an Unjust System

While these realities are daunting, there are several solutions — however unpopular they may be with the financial elite — that could address the root causes of inflation, debt, and inequality:

1. Embrace Modern Monetary Theory (MMT): Governments need to rethink their approach to public spending. Under Modern Monetary Theory (MMT), a government that issues its own currency can spend directly into the economy without needing to borrow from the private sector. This means that instead of relying on private banks to create money through loans, the government could fund infrastructure, healthcare, housing, and education directly.

   MMT suggests that inflation only becomes a problem when the economy reaches full capacity, not when governments run deficits. By embracing MMT, governments could reduce the need for private debt, helping to prevent the kind of inflationary pressure caused by excessive borrowing and speculation.

2. Implement Price Caps on Essential Goods and Housing: To prevent runaway inflation in essential areas, governments could introduce price caps on goods like housing, food, and energy. By capping prices, we can prevent speculative bubbles and ensure that the cost of living doesn’t spiral out of control for ordinary people.

   Housing, in particular, needs reform. Rent controls and housing price caps would stop the speculative frenzy that inflates real estate prices, ensuring that housing remains affordable for future generations. Combined with increased public housing projects, this could stabilize the housing market and make homeownership achievable again.

3. Reform the Banking System: The current banking system allows private banks to profit from creating money and charging interest. This system needs radical reform. One solution is to return money creation to the public sector. By having the central bank (or even a government-owned bank) create money, we could reduce the private sector’s monopoly on money creation and diminish the influence of private banks over the economy.

   Additionally, stronger regulations on speculative lending and tighter controls on bank profits during periods of inflation could limit the excessive wealth accumulation of the financial elite.

4. Tax Wealth and Speculation: One of the biggest drivers of inequality is the accumulation of wealth through speculative investments. Introducing a wealth tax that targets large property owners and financial speculators could help redistribute some of the gains made through inflated asset prices. This could be used to fund public services and reduce the reliance on debt-driven growth.

   Additionally, taxing speculative behavior in the housing market, such as house flipping and property investments purely for profit, could reduce the financialization of housing and re-establish it as a basic human need rather than a commodity.

Conclusion: A System in Need of Change

The inflation we experience today, particularly in high-cost items like housing, isn’t just a byproduct of natural market forces — it’s a manufactured crisis driven by financial policies that serve the interests of banks and the wealthy. If we are to prevent a future where entire generations are locked out of homeownership and trapped in debt, we must rethink the way our economy works.

From embracing Modern Monetary Theory to capping prices and reforming the banking system, there are solutions available. But these solutions will require political will and a readiness to confront those who benefit from the current system.

Without bold action, we risk deepening the inequality that already threatens the fabric of our society. It’s time to put the needs of the many above the profits of the few.