Analysts who advocate a monetary policy that targets “low inflation”
are the equivalent of chickens in the barnyard rooting for Colonel
Sanders to succeed. This idea that a low level of inflation being good
for the economy is beyond moronic.
The fiat currency money system era was accompanied by the erroneous
notion that a general increase in the price of goods and services is
“inflation.” But technically this definition is wrong. “Inflation” is
the “decline in the purchasing power of currency.” This decline occurs
from actions that devalue a currency. Rising prices are the visible
evidence of ongoing currency devaluation.
Currency devaluation occurs when the rate of growth in a country’s money supply exceeds the rate of growth in real
wealth output. Simply stated, it’s when the amount of money created
exceeds the amount of “widgets” created, where “widgets” is the real
wealth output of an economic system.
In ancient Rome, the currency devaluation occurred when the Roman
Government began to “shave” gold and silver coins which enabled it to
increase the amount of coins produced from mined gold and silver in
order to finance Government spending. When spending continued to exceed
the amount of currency produced, the Government increased the money
supply by diluting gold and silver coins with cheaper and more abundant
metallic additives.
In the United States currently, currency devaluation occurs through
both money printing, which has been cleverly disguised for propaganda
purposes as “quantitative easing,” and by the continuous growth in
credit creation. Debt issued behaves exactly the same as printed
currency until that time at which the debt is repaid, not by more debt
issued, but from money that has been accumulated by the debtor in order
to
repay and retire the debt.
The U.S. Government has not reduced the amount of debt issued for
decades. Apologists will look at the Treasuries outstanding chart on
the Fed’s website and argue that the debt level declined ever so
slightly in the late 1990’s. But this was achieved through accounting
gimmicks, not an outright reduction in Federal debt outstanding.
Notwithstanding this, the total level of debt in the U.S. system has
been continuously increasing for many decades. While it’s argued that
this is debt and not money supply, it is a fact that debt issued spends
just like printed money until the debt is repaid and retired. Thus,
currency devaluation has been occurring in the United States on a
continuous basis since at least 1913 (founding of the Fed).
Back to the erroneous idea that “low inflation is desirable.” I defy
anyone to research this and present a rational explanation that has
ever been offered. The best I could come up with is “low inflation is
good for the economy.” That is unadulterated ignorance. That phrase
means that “it is good for the Government to devalue the currency.” Why
is it “good” for a consumer to pay higher prices, i.e. more money for
goods and services on an ongoing basis?
Inflation, where “inflation” means the true definition, is a subtle
mechanism by which the elitists redistribute wealth. Printing money
benefits those who are closest to the money faucet to the detriment of
those who are “downstream” from the flow of new money supply (or credit
created). The banks are always first in line at the money faucet. The
Federal Reserve was erected for that purpose. The creators of the Fed
were all owners of the biggest banks in the U.S. at the time plus the
political puppets of those owners. Go look up the roster of men who
founded the Fed for yourself if you don’t believe me.
After the banks, the Government is next in line. And after that all
of the companies that benefit from Government largess. Inflation, even
“low inflation” is not beneficial to anyone other than those who are in a
position to take advantage of the currency devaluation mechanism.
Period. Anyone who tries to argue that “low inflation is good” and
that a low inflation target should be a primary goal of the Fed’s
monetary policy is either someone who is in position to benefit from
that policy (banks, politicians, big corporations etc) or is tragically
stupid.
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Dave Kranzler spent many years working in various Wall Street jobs. After business school, he traded junk bonds for a large bank. He has an MBA from the University of Chicago, with a concentration in accounting and finance, and graduated Oberlin College with majors in Economics and English. Dave has nearly thirty years of experience in studying, researching, analyzing and investing in the financial markets. Currently he co-manages a precious metals and mining stock investment fund in Denver and publishes the Mining Stock and Short Seller Journals. Contact Dave at dkranzler62@gmail.com.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
