A View From a Farr- 2 of 3: Inflation is Old as Greed and More Dangerous

The following is contributed by Ed Farr. Please feel free to comment on Facebook

Inflation is Old as Greed and More Dangerous.

Inflation started with the first coins. Coins were created as a way to guarantee value. It was bogus, of course. Emperors started debasing coins as soon as the first budget deficit emerged. Paper money made corruption easier. Just print it and shop ‘til you drop.

Electronic money is worse yet. Central banks can create new accounts out of nothing. Suppose you head a government agency. The Federal Reserve (the Fed) gives you a check book and a balance with no money behind it. You run around writing checks. Everyone accepts your checks because the Fed clears them. Sellers deposit your checks in their banks and make other purchases. Nobody asks to see the money. Everyone just keeps on writing checks.

Prices rise as a result. Your agency buys while prices are low. Your spending takes goods from the market, causing scarcity. Scarcity pushes prices up for the “little guy.” The government sucks value out of the nation’s real wealth. Creating money takes buying power from citizens. It’s a hidden tax. Unlike a direct tax, a hidden tax can be raised whenever the government wishes.

We let it happen because they feeds us this Big Lie: “Inflation is necessary while deflation is dangerous. Creating new money doesn’t cause excessive inflation; greed or something else does. The Fed protects the economy. We must have a flexible currency so we can adjust its value. Quantitative easing is not the same thing as wantonly printing money. Only a highly trained economist from one of the great institutions can understand all this. The rest of you should shut up.”

This Big Lie is popular because it tells the politicians what they want to hear. It gives them an excuse to expand borrowing and spending. The government buys everything, from ships to Obama phones but most spending really buys the politician’s favorite commodity: Votes!

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