Tuesday, July 21, 2009


Is inflation good or bad? What causes it? Is it an inevitability?
Let's look at these questions.
First of all, inflation is a monetary event. It is caused by the creation
of more money and putting it into the economy.
Let's look at inflation in relation to gold. We all know gold is relatively scarce
in comparison to other things like lead, aluminum, copper or paper. Because something is scarce and demand for it is high its price reflects that. Gold has to be mined to get it out of the ground at great expense in terms of capital and labor. Then it has to be refined and purified before it can be minted into coins, made into jewelry or used in electronics. All the known, mined gold in the world would fit in about a 66 foot cube, about the size of a small office building.
So how would one lower the price of gold dramatically, say by 95%? Well, one way would be if all of humanity suddenly decided gold was pretty much worthless and demand almost completely disappeared. History teaches us that scenario is not likely. Now what would happen if an asteroid a little over 300 square feet cubed in size, made of pure gold, crashed into the earth? (forget the effects of such a crash) Now gold is suddenly 100 times more abundant. The value of all pre- gold asteroid gold would plummet. Because the supply was inflated tremendously by this unlikely event the value of gold would collapse. All goods and services previously priced in gold would jump in price or inflate about 100 times.
A car which cost 20 oz. of gold to purchase before the gold asteroid arrived would now cost 2000 oz. of gold to purchase, due to the now relative abundance of gold.
It is easy to see that the likelihood of the gold supply increasing 100 times is slim to none at this time. Therefore when items are valued in gold they will not increase in price much at all. History bears this out.
Now how about if we price goods and services in something that isn't in such a limited supply like, hmmm maybe paper. Cut down some trees, turn them into pulp, process the pulp into paper and cut it into little uniform pieces. Then print some pretty designs and numbers on that paper with some colored ink. Now lets call that money and use it to buy stuff.
So the people in charge of this print up say 1 billion units(dollars if you will)of face value in this new paper money and it gets distributed through the economy and used as money. And it works well. Everybody accepts it and business and trade flourish. Seems like a good idea. Prices are stable and jobs are plentiful.
But then the next year something happens which changes everything. The people in charge(let's call them the government) want more money to further their agenda, you know helping the common man and making this society a utopia. So they say we are going to tax everybody at a 10% rate so we can do all these wonderful things we have planned for your benefit because we are such good, charitable people. But oddly enough the "common man and woman" say, "no thanks we will keep our money and use it ourselves for our own benefit". Talk about greedy and self-serving.
So the powers that be (PTB) come up with a plan. They print up another 100 million units(dollars) and start "spending" them into the economy.
So what happens when this new 100 million in money works its way through the economy? Since there is now more money chasing the same amounts of goods and services the prices start to rise. Who does this hurt?
The common man and woman, right? Their income didn't increase and their savings didn't increase when all this new money came into play but the purchasing power of all the original 1 billion units(dollars) decreased. They were robbed just as surely as if a burglar had held them up and stolen their wallet. But on a much bigger scale. Their income now purchases 10% less and so do their savings.
So who benefited? The PTB now had the money to build a bigger bureacracy and control more of the economy. They paid themselves more and rewarded themselves with more perqs and privileges.
The increase in the money supply which is determined solely by the central bankers and their lackeys, the traitors in the government, create the inflation that robs you of your income and your savings.
So now you know where inflation comes from and what its effects are on you. What are you going to do about it?

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