Liberals Call Inflation Scaremongering

Invest in inflation. It’s the only thing going up. – Will Rogers

World War II ration card

The left is trying to justify the escalation of inflation as “Inflation isn’t inexorably a bad thing. In fact, it used to be considered good.” This is another overt attempt to habituate American consumers to soaring prices and to a new low standard of living and to shortages food, goods, and services, a diminished quality of life. What scaremongering about inflation gets wrong - The Washington Post

Inflation represents economically a rapid rise in prices caused by a range of factors. The rate of inflation is calculated by averaging the percentage growth rate of the prices of a selected sample of commodities, traditionally called a “basket of goods.”

There is not much good about inflation but plenty of bad: financial costs and a social cost. Even Keynesian economists recognize that inflation is damaging to the economy in general and to society.

Bondholders, for example, are exposed to losses from inflation. If the overall price level rises, the purchasing power of $1,000 for example, at bond maturity, diminishes, making bond investment an uncertain proposition.

Rising inflation makes it risky to enter any long-term contracts. Lending and borrowing money are also a big gamble – neither lenders nor borrowers would be eager to enter such long-term contracts. But investment becomes impossible without long-term loans. This results in a stagnant economy. A stagnant economy with high inflation then experiences stagflation.

Inflation causes consumers to change their behavior and no longer shop where they used to, they look for bargains elsewhere. Businesses engage in similar practices, they start shopping around for cheaper suppliers; businesses experience rising costs as well, which then slows down the efficiency of the economy.

Low inflation does not necessarily lead to high inflation in theory. In practice, we have seen what happened with hyperinflation in Zimbabwe, in Venezuela more recently, and in the Weimar Republic. There are pictures from that period of a man pushing a wheelbarrow of currency (Deutsche Marks) to buy a loaf of bread and of children building a pyramid of cash during the hyperinflation of the 1920s because it was just as cheap as using sticks or other materials.

In 1989 an article described how Nicaraguans stopped using piggy banks to save coins because due to the 161% inflation for a two-week period – a “penny saved is a penny spent.” Even offering 70% interest rate per month for saving accounts at banks did not persuade Nicaraguans to save money, they spent it as soon as they got it before more inflation deteriorated its value. (New York Times, June 22, 1989, p. 2)

A wise sage, Yogi Berra, allegedly said long ago, “A nickel ain’t worth a dime anymore.”

Indexing (adjusting monetary payments to the reported inflation rate) “seeks to reduce the social costs of inflation” for two reasons: 1) to reduce the capricious redistribution of income caused by inflation; and 2) to reduce the blow caused by our tax system which levies taxes on nominal interest (no adjustments are made for the decline in the purchasing power of money) and nominal capital gains (the difference between what an investor pays for an asset and what it sells it for, again, not taking into account the loss of purchasing power of money).

Inflation strips the purchasing power of wages. Seldom do wages rise faster than inflation but they do occasionally. Keynesian economists believe that in the long run “wages tend to outstrip prices if new capital equipment and innovation increase output per worker.”  Democrats, however, have been telling us since Obama that we must get used to “the new norm” of a lesser standard of living, a low growth economy, and a diminished country.

Inflation has been measured with the traditional basket of goods, food (at home, cereals, bakery products, meat, poultry, fish and eggs, dairy products, fruits and vegetables, other foods, away from home, alcoholic beverages), housing (shelter including rent, homeowner costs, fuel, fuel oil, coal and bottled gas, piped gas, and electricity), clothing (men’s women’s, boys’, girls’, footwear), transportation (private and public), medical care (hospital stays), entertainment (ticket prices), other goods and personal care services (shampoos, toothpaste, soap).

The Consumer Price Index (CPI) is used to make cost of living adjustments to wages and pensions each year. However, seldom do cost of living increases match the actual inflation rate.

The CPI market basket was altered in 1986 to reflect higher spending on housing and food eaten away from home. During the Obama administration, the way inflation has been calculated, “core inflation,” has omitted prices for groceries and gasoline, a move that makes inflation rate appear lower than it is.

The excuse for this omission was that food and gasoline prices are “sensitive to external shocks.” The price of gasoline and food are often the result of fiscal and monetary policies (money printing ad nauseam) by administrations in charge, both Republican and Democrat.

The escalating prices of food and the disruption in the supply chain world-wide has been the result of the pandemic created by globalists with a gain-of-function Corona virus which caused unnecessary deaths from purposeful lack of proper medical treatment and bankruptcies of millions of small, medium, and large businesses across the globe. Americans were also paid by a Democrat regime to stay home, leaving millions of jobs available and unfilled.

The fact that globalists are trying to destroy the fossil fuel industry is no longer a conspiracy theory as President Biden has closed the XL Keystone pipeline on the first day of his presidency, sending oil prices into shock, doubling gasoline prices at the pump, and changing the American status under President Trump from an oil exporting country to an oil importing country again dependent on the OPEC cartel and its oil production manipulation.

The calculation of CPI understates inflation by “excluding housing prices” but not rent and “hiding enormous increases in health care, schools, prescriptions, and higher education.” … What scaremongering about inflation gets wrong - The Washington Post

The Bureau of Labor Statistics uses the Laspeyres formula on:

-          Selected shelter services (housing at school, excluding board)

-          Selected utilities and government fees (electricity, residential water and sewage maintenance, utility (piped gas service, state motor vehicle registration and license fees)

-          Selected medical care services (prescription drugs, physicians’ services, hospital services, dental services, services by other medical professionals, and nursing homes and adult day care) Calculation : Handbook of Methods: U.S. Bureau of Labor Statistics (bls.gov)

The CPI, if used correctly, is a prime indicator of inflation and recession. It reflects economic trends but influences them as well.

When inflation becomes galloping inflation as it did at the turn of the twentieth century, one mark in 1918, at the time of the Armistice, was worth 726 million marks in late 1923. Germans burned their marks as it was cheaper than buying wood for their stoves.

Inflation is an ancient problem. When Emperor Valerian was captured by barbarians in 259 A.D., Romans rushed to turn their money into goods, thus creating a rate of inflation at 1,000 percent over 17 years (too much money chasing too few goods).

Emperor Diocletian tried to curb inflation by passing an edict which fixed maximum prices (price fixing) on 1,000 goods, food, raw materials, textiles, wages, and transportation. It was an utter failure even though the punishment for violating his edict was death.

This is nothing new as our Federal Reserve System (the Fed), in control of our monetary policy (money stock and interest rates) is printing too much money to help pay our Democrat government’s bloated spending and debt to support their globalist mantra, Build Back Better. It should be more aptly renamed, Build Back Broke.

The Biden regime claims that inflation is 7 percent - the highest it has been since 1982, but is it only 7 percent? How accurate is this CPI? Go to the grocery store and the gas station and you decide.

Inflation the Economy's Code Blue

In ordinary parlance, when there is a lot of paper or “fiat” (Latin for “let it be”) money in circulation, prices go up and our dollars buy less. This is inflation. In two famous photographs of 1923, a German housewife burned “marks” in her kitchen stove because it was cheaper to burn money than to use them to buy firewood and a gentlemen pushed a wheelbarrow full of cash to buy a loaf of bread.

The U.S. government issued its first money in 1862. They were called greenbacks because of the peculiar green ink that distinguished them from gold certificates. Before greenbacks, banks used paper money called scrip. The dollar could be exchanged for fractions of its stated value.

Dollars were backed by gold and silver reserves and, until 1963, U.S. bills were called silver certificates.  Today dollars are called Federal Reserve notes and are backed by the economic integrity of the U.S. government. In 1971, the Nixon administration ended the backing of the U.S. dollar by gold and silver.

The oldest surviving paper money is the Kuan, issued in China by the Ming dynasty in 1368. Sweden printed the first European bank notes in 1661 and France had paper money in wide circulation in the 18^th century. The British issued promissory notes in place of paper money. Massachusetts soldiers received these promissory notes in 1690 after the siege of Quebec. There was not much to steal in order to pay the grunts.

The Federal Reserve keeps a count of the paper money in circulation by M1, M2, and M3 (money stock). M1 includes all money in spendable or liquid form: cash and money in checking accounts. M2 includes M1, savings, and short-term deposits such as CDs (certificates of deposit). M3 includes M1, M2, and the assets and liabilities of financial institutions such as long-term deposits.

In a strong economy, demand for currency goes up without any Federal Reserve intervention and the money in circulation goes up. In a weak economy, demand for currency goes down.

When the Fed (Federal Reserve System of banks) follows an easy money policy by increasing the money supply, the economy tends to grow, companies hire workers, consumer confidence grows, consumer spending grows, and the economy improves. It would stand to reason that our economy should have rebounded long time ago since the government and the Fed have been spending and printing money as fast as presses, or electronic transfers could go. Unfortunately, money has been going to Europe, the Middle East, and other overseas entities instead of boosting and creating new jobs in the U.S. The rest was squandered on TARP, bailing out GM and Chrysler to the benefit of Fiat and unions, bankrupt green energy companies, unions, Democrat re-election campaign coffers, United Nations, wars, and fomenting “democracy” in the Middle East.

When the Fed adopts a tight money policy to slow or combat inflation, the economy worsens, spending typically slows, and unemployment increases. As our economy has worsened, unemployment has climbed, inflation grew, but the Fed did not adopt a tight money policy and the government spending has not slowed down, while consumer spending has declined.

We seem to be in an unusual economic period, which defies the traditional economic experience of the past. The intensive care of the U.S. economy has revealed a comatose patient. New factory orders, new housing starts, durable goods, unemployment figures, M2 money supply, the S&P 500 stock index, and the spread between the 10-year Treasury and the federal funds rate are the predictors for our economy’s health. If you were an emergency doctor with the finger on the pulse of this American economy under the current administration and Congress, you would be calling code blue.

Consumer confidence and business confidence are also at an all time low, further proving that the U.S. economy, the comatose patient, needs a heart defibrillator. Small business owners are not hiring because they are worried about the liabilities imposed on them by the high record of new regulations passed last year and the Obamacare. The looming health care regulations, rationing, uncertainty of fees, penalties for non-compliance, taxes, and costs associated with such a massive bureaucratic undertaking with so many loopholes and exemptions has the potential to bankrupt or destroy many businesses.

The Consumer Price Index (CPI) is the measure of inflation. The Bureau of Labor Statistics (BLS) cobbles CPI each month by recording prices of 80,000 goods and services deemed to reflect the expenditures of a typical urban American consumer: housing, clothing, transportation, health care, recreation, education, and others. Currently the CPI is reported at 3.16 percent. Curiously, food and gasoline are not included and Americans know that gasoline prices have more than doubled across the country since President Obama took office.  Food prices have also grown steadily.

The CPI uses a baseline year to compare the current inflation rate to, such as 1982-1984. CPI does not take into account the quality of things consumers buy (which affects price) or a consumer’s change in taste.

In a recession, the Fed creates money to make borrowing easier and keeps interest rates low. As things pick up, sellers sense rising demand for their products or services and begin to raise prices. The rule of 72 is a guide to assess the impact of inflation. Divide 72 by the reported annual inflation rate to find out how many years it will take for prices to double.

The people hit hardest by inflation are those living on fixed incomes such as retirees. Welfare recipients, Social Security recipients, union contract salaried employees, and government employees receive COLA (Cost Of Living Adjustment) remuneration and benefits.

If inflation is slow, it is called disinflation. Deflation is a widespread decline in the prices of goods and services. Deflation does not stimulate employment and production because a declining (contractionary) economy puts people out of work and they cannot afford to buy even at cheaper prices.

Runaway inflation, deflation, or defaults on loans, balance-trade-deficits, and bad economic policies are the sign of an economy and a country in turmoil. Traders manipulate various currencies by trading on the spot, forward, or swap contracts. Some traders have been banned in certain countries for their illegal and overt attempt to bankrupt their currency.

If you think inflation is a modern phenomenon, consider Diocletian’s edict of 301 A.D. to curb inflation. If anyone broke his list of regulations, the punishment was Death. The edict fixed prices for 1,000 items, such as food, raw materials, textiles, transportation, and wages.

When the previous emperor, Valerian, was captured by barbarians in 259 A.D., people all over the Roman Empire, expecting hard times, rushed to spend all their money on goods,  causing  1,000 percent inflation over 17 years.

Diocletian’s prices and income policy did not work but it did not stop him from diverting attention from his government’s shortcomings by putting the blame on speculators and rich people. Diocletian’s edict preamble blames “men who have nothing better to do than carve up for their own advantage the benefits sent by the gods…men who are themselves swimming in a wealth that would satisfy a whole people, who think only of their gain and their percentage.”

I believe that Diocletian’s preamble would please the Occupy Wall Streeters, the unions, people on government dole who pay no taxes, ACORN, the current administration, Hollywood sympathizers of Marxism, and the MSM. They pay constant lip service to “spreading the wealth” and “paying a fair share,” without specifying when that “fair share” is enough and why perfectly healthy citizens do not work and prefer to accept government handouts for their entire lives, from someone else’s stolen wealth. If I think about it, it is a form of reversed slavery, forcing those who work hard to support those who love sloth.