Monday Thoughts – Confiscation of Inflation


Today is a bit of a busy day since I must leave the office and travel to Providence. However, I was thinking this morning about inflation. Yeah I know, everyone wakes up and daydreams in bed about inflation. But what I thought about was just the pervasiveness of that devil called inflation, and how it is used as part of economic policy to fool the people then steal from them without them knowing it – or more insidiously, with their uneducated approval.

I keep thinking about things like the racket which goes something like this:

1. Every year your costs increase officially about 4% on average (30+ year average) and unofficially about 6.5-7% (compare appreciation in gold to the dollar since 1971).

2. Every year you get a “cost of living adjustment that may be equal to or slightly under the official number which makes you feel ok, even perhaps getting your implicit approval because your pay adjusted somewhat to costs

3. And every year, you get poorer because real costs are COMPOUNDING at a much higher rate than your pay increases (and what about people in jobs who don’t get pay raises regularly?).

A liberal’s answer would be to pass legislation to give everyone a pay raise. The correct answer would be to first, correct this notion that inflation is good and deflation is bad (is it bad if things cost less???), and secondly, to control inflation with sound money. (I am using the layman’s definition of inflation here – inflation actually refers to inflation of the money supply – price level increases are often subsequent but not inflation. lately it seems that inflation has come to define price level increases – not sure how that happened but that is the definition I am using here)

Saving and investing would be much simpler without the manipulative Federal Reserve. if there were truly low to no price increases, an average person with little knowledge of stocks, currencies and such, could potentially buy a bond, earn 6% on that bond and build wealth since he wouldn’t have to worry about inflation levels being higher than the yield on his bond (if the bond yields 6 and inflation is 7%, you’re going backwards). unfortunately, with current monetary policy, we are ALL going backwards unless we are a bank, where we could borrow money at 0% and lend it at 6%.

Yes these things bother me – but unfortunately, most people don’t learn economics in school, and if they are taught economics, then monetary policy is taught approvingly so that the average student would likely applaud recent Fed actions. If people really understood this stuff, and realized that the Fed and Us Gov’t debt spending were ROBBING their income AND net worth at a rate of 6-7% a year, then they MIGHT get angry.

Fortunately for the ones who benefit from this confiscation of inflation, most people don’t understand this. Maybe some are starting to though – after introducing an “Audit the Fed” bill to Congress for the last 20 years, Ron Paul has finally gained traction from HR 1207. Let’s hope he’s successful – it already survived one watering down effort from Congressman Watt – but it may get lumped into the comprehensive financial reform bill that is filled with too much other junk to support. Ahh the bankers win again…

Chris Grande