Posted on 11/16/2005 9:38:57 AM PST by Sonny M
Last month, President Bush nominated Dr. Ben S. Bernanke, currently chairman of the President's Council of Economic Advisors, as chairman of Federal Reserve Board to replace the retiring Alan Greenspan. Alan Greenspan's replacement comes at a time of heightened fears of inflation resulting from the recent spike in oil prices.
First, let's decide what is and what is not inflation. One price or several prices rising is not inflation. When there's a general increase in prices, or alternatively, a reduction in the purchasing power of money, there's inflation. But just as in the case of diseases, describing a symptom doesn't necessarily give us a clue to a cause. Nobel Laureate and professor Milton Friedman says, "[I]nflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output." Increases in money supply are what constitute inflation, and a general rise in prices is the symptom.
Let's look at that with a simple example. Pretend several of us gather to play a standard Monopoly game that contains $15,140 worth of money. The player who owns Boardwalk or any other property is free to sell it for any price he wishes. Given the money supply in the game, a general price level will emerge for all trades. If some property prices rise, others will fall, thereby maintaining that level.
Suppose unbeknownst to other players, I counterfeit $5,000 and introduce it into the game. Initially, that gives me tremendous purchasing power, whereby I can bid up property prices. After my $5,000 has circulated through the game, there will be a general rise in the prices -- something that would have been impossible before I slipped money into the game. My example is a highly simplistic example of a real economy, but it permits us to make some basic assessments of inflation.
First, let's not let politicians deceive us, and escape culpability, by defining inflation as rising prices, which would allow them to make the pretense that inflation is caused by greedy businessmen, rapacious unions or Arab sheiks. Increases in money supply are what constitute inflation, and the general rise in the price level is the result. Who's in charge of the money supply? It's the government operating through the Federal Reserve.
There's another inflation result that bears acknowledgment. Printing new money to introduce into the game makes me a thief. I've obtained objects of value for nothing in return. My actions also lower the purchasing power of every dollar in the game. I've often suggested that if a person is ever charged with counterfeiting, he should tell the judge he was engaging in monetary policy.
When inflation is unanticipated, as it so often is, there's a redistribution of wealth from creditors to debtors. If you lend me $100, and over the term of the loan the Federal Reserve increases the money supply in a way that causes inflation, I pay you back with dollars with reduced purchasing power. Since inflation redistributes (steals) wealth from creditors to debtors, it helps us identify inflation's primary beneficiary. That identification is easy if you ask: Who is the nation's largest debtor? If you said, "It's the U.S. government," go to the head of the class.
So what about the president's nomination of Ben S. Bernanke as Alan Greenspan's replacement? I know little or nothing about the man. What I do know is that it's not wise for one person, or group of persons, to have so much power over our economy. Here's my recommendation for reducing that power: Repeal legal tender laws and eliminate all taxes on gold, silver and platinum transactions. That way, Americans could write contracts in precious metals and thereby reduce the ability of government to steal from us.
Where did you get the word "normalcy" from?
"What's inflation?"
John Kerry's opinions of himself.
Inflation is what you get when you elect an idiot president. Oh....say.....someone like Jimmy Carter.
Heh. It certainly is a tempting belief....
Especially for an engineer...
I thought it was odd they decided to stop putting out the stats for that.
Granted, you can figure it out on your own, if inclined too, but why make extra work when the FED could just provide it?
If its important to someone, they can and will be able to figure it out, but whats the point of just removing it?
Its like a baseball team refusing to give out batting averages, but giving the relevent numbers (hits and abs) to get it anyhow.
The form that money takes is irrelevant. The number of dollars in the economy, virtual or otherwise, is a creation of government while GDP is a measure of actual wealth.
Reduced supply (of imports) with the same money supply is inflationary.
Granted. But how does one figure "the number of dollars in the economy" when many if not most of those dollars are simply numbers in computers?
I don't mean to go all existential on you. I just find it confusing.
I had the same conundrum in my career as a technical writer. Much of my output was never printed; it went straight to PDF files or HTML to post to the web. I rarely if ever made an actual thing you could hold in your hand, although I wrote and edited quite a few documents. Someone asked me what I did for a living about this time.
I told him "I rearrange electrons."
He followed it up by how it was different from private property like your home.
Today I kind of chuckle thinking of the kelso decision and what anaology he uses now.
What does our Constitution say about money? Remember, our FF knew all about deflation, hyperinflation, fiat currency etc. They had just lived through it!
Section. 8. Clause 2: To borrow Money on the credit of the United States;
Clause 5: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
Section. 10. Clause 1: No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;
I can hardly wait.
Under the money act of 1792, your real work would be paid for in real metal you would hold yourself, privately.
Today, your real work is paid for in symbolic money which means the central bank holds your pay in a constructive trust for you. Your money is not your pay. Your money is not even yours. But are tokens representing your share in the trust pool of tickets. Worse, all the tickets are lent to someone so they represent interest bearing debt, either to an individual or the government. Williams article is a good one because it warns us that we cannot trust the central bank to protect the purchasing power of the tickets.
You can get a portion of your wealth out of the trust by selling some FRNs for gold and holding it privately. This action severs your involvement with the CB to the extent you choose not to employ them as wealth trustees for your estate.
I get a sinking feeling everytime I see the feds rearrange the deck chairs.
This country is propelled by debt, expansion and inflation. Stop any one of them and the Great Depression will look like a cakewalk.
Is there any doubt on how the government plans on dealing with huge debt? It is not going to paid off with taxes or production. Count on inflation.
President Bush is passing this hot potato to successors. And if the government can't inflate because of international competition, the SHWHTF [last word fan].
The guys rearranging the deck chairs keep their place close by the lifeboats. We steerage capitalists will go down with the ship as usual.
There will always be people willing to lend money even if it is only in the form of gold coins. They will be those who consume less than they produce. What we should like to see less of is illicit credit that exists as a result of monopoly privileges to issue a sovereign nation's money supply.
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