Inflation: Myth and (Stark) Reality!

By: Alex Wallenwein | Fri, Jul 1, 2005
Print Email

Don't you feel good that our Great White Father at the Federal Reserve Bank has tamed inflation for us? Just think back of the horrible seventies and early eighties when inflation was at double digits. And look at us now. Inflation is actually below three percent!

What an achievement - or so we are told to think.

And, most of the time, we obey. We think what we are told to think.

We have no choice, really. Wherever we turn, whether in the financial press, on TV, at the water cooler at work, or even on web sites dealing with economics, the same mantra is repeated: "Inflation is tamed! We have it all under control! Go back to your TV sets and drink beer!"

Why would anyone disbelieve the mantra, when the proof is in the pudding? Just look at this chart, and compare the inflation rate of today with that of 1980. "Can't you see? We've won! We have slain the inflation dragon! Why do you continue to doubt? What evidence have you?"

At this point, even the most skeptical of the doubting Thomases among us simply give up. We all know that the stuff we buy gets more expensive all the time, but it seems we just can't prove it. This chart is just too convincing. We have nothing to hit our policymakers over the head with. The numbers just don't lie.

Or do they?

In one way, they tell the truth. The rate of inflation truly is lower today than it was two decades-plus ago. The lie, as is so often the case in this deceptive world of politics and high-powered finance, lies in the choice of numbers - not the numbers themselves. Politicians have learned to lie with the truth!

What does that mean?

The very choice of using the RATE of inflation to talk about price increases obscures the absolutely mind-boggling reality. The rate of increase can be steep, or it can be a little flatter. At times, it can even be totally flat, or even turn negative for short periods of time. That's how we got down from double digit rates to low single digits in the last twenty years.

But here is the frightening and eye-opening reality of it all.

BAM!! You've been had, my friend.

The "rate" of inflation may be tamer now than it was in 1980, but we've had nothing but a two-decade long period of unrelenting price increases - such that today's prices are more than 120 percent higher than they were in 1980!

It's a classic switch-and-bait maneuver.

The truth is that a pure fiat system under the direction of a central bank that has to report to a legislature made up of elected officials (who want to get re-elected) MUST have inflation to even exist.

In a fiat system, money is debt. And debt carries interest. And interest must be paid back to the lender or he won't make money off you (or off the government in the case of the Fed buying government treasuries - which are promises to repay debt - to help the government finance its extravagant expenditures). So debt has to be paid back with more debt, but in a fiat system like ours, debt is the very money we use to pay for stuff. So, more and more "money" (debt) has to be created all the time, and that drives up prices (quoted in terms of fiat-debt) in the economy. The result: we have perpetual inflation. (Still wonder why, according to the Bible at least, God forbids charging interest?)

By selling you on first fractional reserve banking, then on central banking, and finally on perpetual fiat creation, you've been sold a bag of goods that contains -mainly inflation. Inflation means expansion. Expansion of what?

Of debt.

But debt is negative wealth. Our current monetary system is like digging a hole that gets ever deeper and wider so it doesn't collapse in on itself.

Here is an example of what that means to this country's political life.

Congress "debt ceiling" (the maximum amount of money Congress is allowed to borrow by its own laws) has been constantly raised for the last several decades. This ceiling has been raised so high that no one can even see it with the naked eye any longer. It has been lifted to stratospheric heights (currently near eight trillion dollars - nearly the entire amount of money circulating inside the US!) What does it mean when Congress constantly raises the debt ceiling? It means that we, as a country, are now living in a veritable cathedral of debt. Now ordinarily, cathedrals are places of worship. Guess what is being literally "worshiped" in this cathedral?

The creators of debt.

Lenders.

Bankers (central and otherwise).

Debt has become the altar at which our politicians "pray," day in, and day out. And the demigods of debt' are bankers. So, who runs this (and any other) country, really?

But, I digress.

Back to inflation, which we now know is the institutionalized mushrooming of debt.

If you quit looking at the numbers the establishment always dangles in front of your face (like a hypnotist focuses your attention on the point of his pencil, or like the cheap magician with his card tricks who focuses your attention on his left hand while he performs the invisible switch with his right hand), you can see the stark and unrelenting truth.

The real numbers to look at are not those that show the "rate of increase," but those that show the actual price level. That's what you're paying at the grocery store. And that has gone nowhere but up while we were led to believe that our leaders (lenders?)have "tamed" it.

The speed at which prices increased had to be brought under control - lest the sheep get nervous. Thus, the continued rise in actual prices could be obscured because we're such short-term thinking creatures.

And here is an example of what that means in your personal life:

You're in debt!!

Sorry for screaming. What are you going to do about it?

The classical hedge against inflation (and the antidote to negative wealth-expansion) is the enemy of all things fiat and those who issue it:

Gold.

To obscure the stark inflation-reality, gold had to be beaten down over the last two decades. That was done. Very successfully so.

The Fed's target interest rate (green line) was jacked up sky high in 1980 and even higher in 1981 when gold threatened to come back from the first barrage. That worked like a charm - until 2001.

A controlled fiat-price of gold was a major tool in making us believe that inflation was in fact "under control." So, in effect, two kinds of lies obscured the reality that was right in front of our eyes the whole time - kind of like that super magician guy who made the Statue of Liberty "disappear." (What a perfect example!)

First, the switch and bait of refocusing our attention on the far more easily manipulable rate of inflation - rather than the continuously rising price level itself. Second, the switch and bait of refocusing our attention on far more easily manipulable fiat money (debt) as the measure of all value - rather than gold.

The result of all this?

We now all believe that inflation is under control, and that fiat (printed paper evidencing debt) has more value than gold.

But you now understand that both assertions are lies.

So, go and make it right.

Either that, or stop complaining about lying politicians, be they Dumbocrats or Repugnicans. If you do nothing about this, you are asking them and your bankers to lie to you. Better learn to just bend over and shut up.

Got gold?


 

Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com