There is a great deal of discussion about inflation and even hyperinflation, but most are not really aware of what either are and how they come about. Inflation is not, as you have often heard, “high prices.” High prices are among the symptoms of inflation. The classical definition of inflation, simply put, is “too much money chasing too few goods.” We have a great deal of that going on in our economy today. The result is not only high prices, but outrageously high interest rates (which are right around the corner) and a massive drop in the value of US bonds in the eyes of international buyers. Those bonds are one of the primary vehicles our country uses to avoid bankruptcy, because of the size of our debt and deficits.
Many Americans believe we have not had a problem with inflation in decades, but the reality is inflation has grown steadily at approximately 4 percent for years. For example, items that totaled $100 in 1988 would cost almost twice that today. Those higher prices did not go up because the items became more scarce or the ability to produce them had declined (in fact, the exact opposite has happened; technology and the ability to easily do business internationally should have drove pricing down), it is due to a reduction in the value of the currency itself. This is a cowardly form of taxation, with the government decreasing the value of all money by printing fiat dollars as a form of paying bills. It is much easier to do that than the government behaving in a fiscally responsible manner.
So we have had inflation for decades, yet it has largely gone unnoticed by millions of Americans who remember the double digit inflation of the 1970s and are too busy trying to make a living to notice the government chipping away at the value of all money today. Now the federal government is going much further in its efforts to devalue our nation’s money. We have got into the mode of adding $1 trillion to the deficit annually. Twenty years ago, this was the amount of the entire national debt and took almost two centuries to accumulate. The Obama administration has to do something in order to make this shell game of fiscal insanity work. There is no doubt Obama wants to raise our taxes and has moved aggressively in that direction. However, the US already has the second highest corporate tax rates in the world among industrialized countries according to the G-20. Unless the US wants to shut this economic machine down entirely, they will have to look for strategies beyond tax increases. One of those clearly include more inflation and it has already begun to happen.
On one day earlier this year, the United States took a chapter out of Zimbabwe’s playbook by pumping $1.2 trillion into the money supply in an attempt to pay off its bills. Many Americans have (rightly) been alarmed by the more than $1.5 trillion we have seen in bailouts. According to the Washington Post, these inflationary efforts have the potential of being much more far reaching, noting that “combined with the billions already deployed by the Fed, the new money dwarfs even the biggest government bailouts of financial companies.”
Historically, this type of monetary policy leads to the kind of inflation that we have seen in history books, where it is cheaper to use money for wallpaper than to buy it or it requiring a barrel of money to buy a simple loaf of bread. One of my favorite photos is a Weimar Republic sanitation worker in the days before World War II literally sweeping money in the gutter because it was both worthless and in excess. Printing worthless money will not sweep our problems away, but make issues we never imagined.
Kevin Price
http://BizPlusBlog.com/
![[Valid RSS]](http://newsbyus.com/valid-rss.png "Validate my RSS feed"){kind=small}
by
