Invest in inflation. It’s the only thing going up. – Will Rogers
- - the
inept government run by Democrats at the federal level
- - the
production and supply chain disruption, bankruptcies, forced unemployment, and
generous welfare to stay home, all caused by the continuous Democrat lockdowns and
political fear posturing over a flu virus
- - Joe
Biden’s disastrous reversal of anything relating to fossil fuel production
which escalated gas prices and made America once again dependent on foreign oil
supply
- - the Green New Deal which is destroying the economy
- - Congress’
out of control spending of trillions of dollars printed ad nauseam, with no backing
up of goods or services
Inflation is
an ancient enemy, with its cousin, stagflation, inflation while the economy is
stagnating. Inflation measures via the consumer price index (CPI) the rising
prices of goods and services which leads to a decrease in the purchasing power
of the dollar. The same dollar used to buy a basket of goods today will buy a
smaller basket due to rising prices.
The consumer
price index (CPI) calculated by the Bureau of Labor Statistics (BLS) uses a
weighted average of various goods and services Americans buy, i.e., food,
shelter, transportation, doctors, dentists, medicines, and is differently gauged
for rural v. urban inhabitants.
The method
does not accurately reflect price increases as Americans use some services more
than others, and housing costs, healthcare, and education vary from region to
region. The CPI calculation methodology has changed more than twenty times and
is still not an accurate measure of inflation.
What causes
inflation?
-
Consumer
demand for goods is much larger than supply, pushing prices of supply available
up – see the case of new cars, the supply is much lower due to an alleged microchip
shortage, therefore dealers add an average of $5,000 to the price of new cars
-
Increase
in supply of money and credit to consumers – the government spending and
printing money more freely
-
Price
of goods increase because of higher production costs due to higher price of raw
materials and higher employee wages
-
Wage
push inflation – people expect inflation rates to continue (Federal Reserve
target of keeping inflation at 2 percent rate per year) so employers increase
wages, followed by increased consumption rates, which pushes prices of goods
and services up.
-
Most
economists agree that one compelling cause of inflation is the money supply
that expands too rapidly, i.e., printing too much money.
The buying
power of the dollar declines rapidly during high inflation. A classic example
of galloping inflation is the German mark. In 1918 at the Armistice, one mark
bought the same amount of goods and services as 726 million marks in 1923, just
five years later. Burning paper money was cheaper than buying firewood.
Inflation is
not bad for debtors; if you earn $1,000 you may have borrowed five years ago, is
much easier. What you pay back the lender, the $1,000 buys less than it did
when you borrowed it.
There was a
time when breaking the law and causing inflation resulted in the ultimate
punishment – death. To be more specific, Roman Emperor Diocletian, to curb
rising inflation, devised a set of regulations in 301 A.D. Anyone caught
defying his edict was killed.
Emperor
Diocletian listed 1,000 items with fixed prices that could not exceed a certain
maximum price, i.e., food, raw materials textiles, wages, and transportation. Anyone
caught charging more for his listed items or trying to sell their wares on the
black market for higher prices would be summarily executed without any benefit
of a trial.
How bad was
this inflation that Emperor Diocletian was trying to shrink? According to
historians, the inflation rate was 1,000 percent during a period of 17 years.
Reducing money printing was one way to deal with inflation. The government of
that time tried to deal with the escalating inflation by debasing the currency
so that instead of coins minted from precious metals, coinage was made mostly
of copper.
But,
debasing the currency, making it inferior in metal quality was a mistake, it did
not go unnoticed to merchants who began to demand higher prices for the goods
they sold and to citizens who demanded more wages for their work, resulting in
more inflation.
But what
caused this galloping inflation to being with? A half century of political
turmoil, instability, non-stop warfare with the barbarians, the capture of the
previous emperor, Valerian, by the barbarians in 259 A.D. Speculators caused a
financial crash in which people hurriedly turned their available cash into
goods.
Diocletian’s
government failed to put blame on its shortcomings in dealing with “speculators
who gambled on grain futures.” It is, however, written in the preamble of Diocletian’s
edict, that those responsible were “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.”
Diocletian, a
man of low birth, was proclaimed Emperor at the age of thirty-nine by his
troops. He found out painfully that he could not reduce inflation by
legislation – people, who saw their money devalued again, rushed to stockpile
all the goods they could find and afford before their money lost value even
more.
The black
market flourished, one of the unintended consequences of bad price and income government
policies. Emperor Diocletian managed to keep the empire together for a while and
was one of the few leaders of that time able to retire and to eventually die in
his own bed, a rare feat for emperors. At his villa in Salona, the modern
Yugoslav town of Split, he grew cabbages. When approached to return to the life
of command, he is alleged to have said, “if you could only see my cabbages,
which I planted with my own hands….”
People in
our modern economy hurry at times to exchange their available cash for goods they
hoard during unstable times of fear and shaky economy caused by terrible government
leadership.
Yogi Berra
is famously alleged to have said, “A nickel ain’t worth a dime anymore.”
Inflation does that to currencies. Of course, you could use the barter system
and exchange goods for goods. The colonists used bullets and gunpowder as a
medium of exchange and one town famously made money out of rectangles of wood. Colonists
also cut up coins to make change, making a half coin worth four bits and
a quarter coin two bits.
Cash will
eventually become obsolete, replaced by chipped cards, and controlled entirely
by government via technology. We are unsure how they would devalue balances to express
inflation, but we are certain that they will immediately collect all taxes owed,
and unless we do as they say, our electronic balances will be inaccessible to
us.
