Inflation and devaluation: Two sides of the same coin
Article by Jay Davidson in The American Thinker
There are inherent dangers in the immense debt our government has placed on each of us. Following is an attempt to draw bright lines between inflation and money supply, between cause and effect and solution.
The amount of money circulating in the economy is called money supply or liquidity. It has a profound effect on inflation. The prime directive of the Federal Reserve is to control the supply of money (the number of U.S. dollars in circulation) and thereby protect the value of the U.S. dollar. When the Fed prints too much money, it devalues all existing dollars in the economy, and in your pocket, under your mattress or in your bank account. That devaluation causes inflation, which simply means that more dollars are needed to purchase the same item. As the great economist Milton Friedman said, inflation is a monetary phenomenon. More on this later.
Current Fed action to increase interest rates will slow down the economy but will have no impact on inflation. Ergo, the Federal Reserve caused inflation, and its solution will not stop inflation.
The federal government obtains its revenue historically from two sources: taxation of the private sector and debt (U.S. Treasuries) that the private sector pays back over time. This revenue is used by the federal government to pay for itself — its bureaucracy and its programs like entitlements, Social Security, Medicare and Medicaid, and the military. But when the Administrative State spends too much money, and it can't use market-based debt (Treasuries) anymore, it turns to a rather dark practice that has significant ramifications. It starts printing money without regard to inflation, which is devaluation of the buying power of the dollar.
There is an unholy alliance among the Administrative State, the Treasury Department, and the Federal Reserve. The last two are the only entities that can print U.S. dollars and U.S. Treasury bonds. These entities colluded, in 2008 under Obama, to destroy the economy and, with it, private enterprise. That was when they concocted the plan and implemented Quantitative Easing (Q.E.), wherein the Federal Reserve printed U.S. dollars far in excess of the number needed to keep the economy liquid and, with that newly printed money, bought U.S. Treasury bonds from the Treasury Department. In this way, they transferred trillions of U.S. dollars into federal spending, placing every citizen in debt and devaluing the dollar.
This newfound incestuous source of money is then used by Congress and the administration to fund federal entitlement and welfare programs far in excess of tax revenue and market-based borrowings. Every welfare program, every penny spent on boondoggles, is nothing more than a bribe so that politicians can get re-elected. These politicians are using our hard earned money via taxation, and also putting us into debt, so they can get re-elected. That is government spending.
Any student of the Austrian School of Economics and any scholar reading Von Misses, Hayek, or Friedman knew that this way led to disaster. We were ignored, ridiculed, and marginalized by the Keynesians and the left. Today's high inflation is an arbiter of the disaster wrought on the American citizen by the big-government politicians in both parties, but mostly the left. It's no wonder the citizen doesn't know for whom to vote.
The solution is obvious. Reduce excess liquidity in the economy. That means stopping Q.E. Stop government spending. Believe me: the "warm" embrace of government involvement in your lives and in the private economy soon becomes a stranglehold on your individual rights and freedom.
There is a profound reason why the Constitution places restrictions exclusively on our government. The founders knew that central control, government, grows if not held in check. It is our job as individual citizens to demand less government spending and less government regulation. We can reverse the disaster of excess by exercising our right as individual citizens of a great nation of freemen. There is a reason we have a representative form of government: freemen exercise their rights to form a government of like-minded people.
