You hear it all the time that some inflation is a good thing. You hear it on business programs that simply say it without analysis or concern. Most economists support the notion and the one thing they claim is terrible is deflation. Inflation is when your money is becoming less valuable and deflation is when your money gains value. Looking at the simplicity of these two phenomena you would think an easy and accurate conclusion would be inflation is bad and deflation is good. Instead the rush for less valuable money is promoted and seldom even questioned. Of course if inflation starts to rise significantly as it did during the Carter years there is more concern and the Fed starts raising interest rates to quell the problem.
Ask yourself, if an inflation rate of 2% over ten years is somehow better than reacting to a 20% inflation rate after a period of no inflation and then a spike? The money has lost the same value but one is “normal” and the other is a concern. You won’t hear this brought up on the “business” channels as they merrily sing about the phony government reporting and contentedly coo that all is as it should be.
In the long run the “small” inflation rate makes a mockery of the value of your money. Look at the value of coinage today as it approaches worthlessness. A dollar isn’t even equivalent to a dime when dime stores were popular. The price of beef is beyond many , a new car is thousands and thousands above 30 years ago and new home prices are out of this world. Yet life goes on and the creeping dragon diminishes the value of currency daily.
You would think a government 20 trillion dollars in debt would see that eventually interest on the debt would diminish the government’s ability to finance its legitimate functions. But politicians being the short sighted species they are conclude they can outlast the collapse as it probably won’t happen during their career. They like the talking heads on the business channels simply smirk and chuckle at any suggestion that the issue needs to be of concern.
After the great depression the value of money increased. Then as World War Two entered the picture inflation shot up like a rocket. In the first instance government was not spending to any great degree and in the second it was spending beyond belief. Notice any correlation?
The usual political response to the impending crisis with interest payments is to call for more growth of the economy. More growth means low interest rates artificially set by the Fed which makes for easy money for growth and business expansion. Has growth ever achieved monetary stability? Growth is only a stop gap until the coffers start to swell and the government decides it can pander and spend to get voter support. Thus the debt grows, the debt limit must be increased and the value of the currency sinks to a new low.
It is an impossible dream that the government can balance a budget, restrict its spending, reduce its debt under the current structure of government. As long as the government can meddle in the economy, distortions and disruptions it will continue and the inflation they try to hide will eventually grow to the levels where hyperinflation will rampantly consume buying power. The results of this in Venezuela and Zimbabwe are not unique to their location or culture. It is the result of dumb economic thinking that can happen anywhere if the ignoring of inflation is sanctioned.
The myth that a little inflation is a good thing will continue until the scam of false reporting becomes evident. You can report inflation either accurately or fraudulently. But no matter how you report it, it operates with or without reporting. To monitor it you have to come up with a measurement that accurately depicts what is the real rate of inflation. That will not be a method that is designed to ease the burden of government spending. The debt will still rise and the value of money will deteriorate and the government can pronounce inflation is low but the results of the spending will appear even when ignored or distorted. Here’s a simple example to illustrate the phenomena . Suppose you decide that you will not change your oil in your car. The cars performs for a while and you keep writing down that the oil is changed when it isn’t. This false reporting eventually ruins your engine as it doesn’t reflect what is in reality, only in your reporting. We are long overdue for an “oil” change as the deterioration is happening and will not stop simply because we are reporting that it is. Skipping oil changes eventually destroys an engine. Writing down a false report on inflation and pretending a little inflation is a good thing will shut down our economic engine. Monetary stability should not be a function of government but a function of the free market and supply and demand. It cannot be achieved by the whimsical management of the government which cannot operate under politicalism.Tags: accounting Inflation National Debt