Governments robbing their citizens:
Inflation an invisible tax:
Inflation, is an invisible, secret tax that not even 1% of common people understand. It is dangerous and most of the time a fatal disease. If not under control in time, it can destroy society. No government is willing to accept responsibility for causing inflation. They always find an excuse; such as greedy businessmen, selfish trade unions, spendthrift consumers, Arab sheiks that have raised the price of oil, bad weather, or anything else that seems plausible. Although all these can temporarily produce higher prices for individual items; they cannot produce continuing inflation for one very simple reason; None of the above alleged culprits possesses a printing press, to turn out pieces of paper called money; None can legally authorise a bookkeeper to make entries on ledgers that are the equivalent of those pieces of paper.
Over time, the result will be an immensely lower standard of living, resulting from the declining purchasing power and increasing commodity prices. Real wages will be much lower, as employers will not readily increase wages to keep up with inflation. Under a paper system without backing, the entire monetary system is controlled by the political class, which has the power to allocate capital or to deny it. This implies that the people heading the world’s capital markets, rather than acting as capital allocators, have become mere speculative marionettes, whose strings are controlled by the well connected and the influential.
Inflation is a printing press phenomenon. The two important basic questions are:
- Why do governments increase the quantity of money?
- Why do they produce inflation when they understand the potential harm?
If the quantity of goods and services available for purchase – for short-term ‘output’ – were to increase as rapidly as the quantity of money, prices would tend to be stable. Prices may fall gradually, as more became available, while people keep their wealth in the form of money. Inflation occurs when the quantity of money rises more rapidly than output and the more rapid the rise in the quantity of money, the greater the rate of inflation.
Output is limited by the physical and human resources available, and by the improvement in knowledge and capacity to use them. At best the output can grow only fairly slowly. The same is the case, although always temporarily and for a brief period of time, for money backed by a commodity. While, paper money has no limitation as does commodity-backed money.
Inflation is a monetary phenomenon:
In short; Inflation is primarily a monetary phenomenon, produced by a more rapid increase in the quantity of money than in output. Excessive monetary growth produces inflation, caused by governments. – In general, inflation is worse than a financial crisis. Taxpayers’ money is spent for nothing without reform in sight; Increase in unemployment, as businesses go bankrupt. – Bankers that caused the 2008 financial crisis were bailed out with people’s money and their managers were left in charge who in turn were taking on even more risks with taxpayer’s deposits in order to rake up even larger bonuses. Eventually these schemes will result in a massive inflation, never witnessed before. The debt is structural; it’s irresolvable, there is no way to repair this economy.
Inflation legalised theft:
Inflation is nothing more than legalised theft by your government; inflation is only two percent, is what the Statistics suggest. But these numbers don’t show the truth. Today’s real inflation rate is probably closer to 9 %, maybe even higher. Who knows? All published inflation data are a blatant lie, as these numbers are made up to suit the government. Showing lower inflation in statistics looks better. The theft committed by governments is concealed.
When central banks print reserves far in excess of domestic savings, the result is inevitably inflation. The more they print, the more capital is available for institutions – central banks – to invest. This creates massive asset inflation, in the price of assets, as central bankers buy – bonds, stocks, and real estate – to push economies upwards all around the world. – Instead of triggering an immediate currency flight, as seen in Argentina or Zimbabwe, this inflation has produced an investment-generated boom. The ongoing ‘financial boom’ is a fallacy of historic portions. Nobody knows exactly when, but eventually the world will lose faith in central banks’ ability to boost markets.
A better way than creating inflation:
If additional government spending was financed either by taxes or by borrowing from the public, that would not lead to more rapid monetary growth. In this case the government would have more to spend, while the public would have less. But the easy way out is increasing the quantity of money, because that’s more attractive since the public doesn’t understand the severe implications, and it seems like magic, like getting something for nothing! But the fact of the matter is that the holders of the money pay for the extra spending, as the extra money raises prices when it is injected into the economy.
Moreover, inflation indirectly yields extra revenue by automatically raising effective tax revenues, as income from the people goes up to compensate for inflation, and people are consequently pushed into higher tax rate brackets. Additionally, there is the benefit of paying off debt with less valuable currency – less purchasing power – as less valuable units are paying for original units that were more valuable.
Reduction of monetary growth:
The cure for inflation is the reduction in the rate of monetary growth, as this is the cause of inflation. Eventually it is a curable disease. Although the bad effects – a temporarily lower economic growth, and higher unemployment would be felt first, the good effects – a lower to zero inflation – would come later. This would result in a healthier economy, with the potential for rapid noninflationary growth.
But as usual there is the lack of a true desire to cure the addiction of free money, resulting in this disease. In a sense people enjoy inflation. Although they would like to see the prices of goods they buy go down, or at least stop going up, they are more than happy to see the prices of the things they own or sell go up.
Inflation is Destructive:
One reason inflation is so destructive is because while some people benefit greatly, other people suffer. Society is divided into winners and losers. The winners regard the good things that happen to them as the natural result of their own foresight, prudence, and initiative. They regard the bad things; the rise of prices of goods purchased, as caused by forces outside their control. Almost everyone will say they are opposed to inflation. What they generally mean is that they are opposed to the bad things that have happened to them due to certain effects of inflation.
The paper value of homes is rising. With a mortgage, the interest rate generally is below the rate of inflation. As a result of this, inflation in effect is paying off the mortgage interest payments as well the principal. This effect is an advantage to the home owner, as his equity in the house goes up rapidly. The flip side of the coin is that an interest rate below inflation results in a loss for savers.
As inflation accelerates, rather sooner than later, it is causing so much damage to the fabric of society, by creating so much injustice, and suffering.
Everywhere one looks it is repeatedly published that unemployment and slow growth are cures for inflation; that all alternative measures taken will result in more inflation or higher unemployment, which is nonsense. The truth is that slow growth and high unemployment are not cures for inflation. They are the side-effects of a successful cure of a diseased economy.
The general signal of increasing demand will be confused with the specific signals reflecting changes in relative demands. That is why the initial side effect of faster monetary growth is the appearance of prosperity and greater employment. – When it is discovered that the rise in wages does not coincide with higher demand, the flaw in the system is discovered. Wages and prices are higher not because of higher demand, but primarily to allow for the rises in the prices of goods they buy. Subsequently people are off on a price-wage spiral that itself effectively is inflation, and by no means the cause of it. If monetary growth does not speed up faster, the initial stimulus to employment and output will be replaced by the opposite; both will go down in response to the higher prices and wages. By the way; governments can actually not create jobs, they can only steal from people and give it to others.
If it were politically profitable and feasible to generate a 10% inflation rate, the temptation would be great if inflation indeed reached this level, to raise it to 11, or 12 or 15 %. Zero inflation is a politically feasible objective; 10% is not. This is the verdict of experience. Nevertheless, central bankers create excessive quantities of money, as they tell us the world needs more inflation to fight deflationary forces, which basically is nonsense as the deflationary forces are the result of the increase of monetary supply.
The best solution to create inflation:
Moreover, if they want to create inflation, there is no need for excessive money printing. They can create inflation instantly by raising the price of gold, which is the easiest way to create inflation. A higher dollar price for gold is practically the definition of inflation. The Fed would just declare the price of gold to be, say, $5,000 an ounce and make the price stick using the gold in Fort Knox – assuming it is still there? – Their printing press would maintain a two-way market.
The Fed could sell gold when it hits $5,050 an ounce and buy gold when it hits $4,950 an ounce. That’s a 1% band around the target price of $5,000 an ounce. The band and the use of physical gold would make the target price stick.
A higher price for gold is the same as a lower value for the dollar. The world of $5,000-per-ounce gold also means $10 per gallon gas at the station and $40 for a movie ticket. Nothing happens without consequences.
Santa Claus doesn’t exist:
Inflation, in contrast to what economic leaders lead us to believe, is not equivalent to Santa Claus. It can’t bring gifts to everyone. All it does is shift the benefits of the economy around. In the immortal words of President Obama: “inflation spreads the wealth around a little.”
Inflation penalises wage earners, savers, and retirees to the benefit of asset owners. It benefits debtors at the expense of creditors. There’s no net increase in the nation’s wealth. One group is merely taxed for the benefit of the other. This is sold as a benefit to the country by governments. They have to sell it to the people because without inflation they won’t be able to pay their bills.
However, wealth cannot be created by a printing press. This will cause price inflation, asset inflation, credit collapse – or a mixture of all three. Everyone knows this. Nevertheless, our leaders pretend otherwise.
If credit is expanded in excess of savings, it historically always ends in a collapse. So there should be no surprise. When creditors begin to ask the critical question: Can these debts really be financed? Will we get our savings back? If credit has been expanded radically beyond savings, as is the case today in the developed world, the answer is always NO.
It is true that dramatic increases in the money supply eventually lead to inflation. But the key word here is “eventually.” Sometimes it can take a while. The extent of the delay depends on general conditions, and a very important concept known as “monetary velocity.”
When banks are lending, businesses are borrowing, and consumers are spending, money changes hands quickly. Under these conditions, the monetary velocity is high.
Conversely, when banks don’t lend the money, businesses are hunkered down, and consumers are saving or paying down debt, money does not change hands quickly. It moves slowly. If the economy grinds to a near halt, as is the case today, eventually money stops changing hands completely.
Inflation is not purely from an increase in the money supply. Sufficient monetary velocity is required to spur a general and persistent increase in the price of goods and services. Without velocity – if money doesn’t move through the system – there is no reason for prices to rise.
The point is that it’s not just about how many units are being printed. It’s about where those units go and how fast they are moving through the system. The end game may indeed be accelerating monetary velocity. The cumulative effect on the rise in prices and a spectacular loss of faith in the system will result in a decline in the desire for owning dollars will plummet, and that means hyperinflation.
How Much Money is in Circulation?
Ever wondered how much money exists? This video compares the world’s richest people, the biggest companies, physical currency, the gold market, the stock market, global debt, and more to give you a sense of the quantity of money that actually exists.