Tag Archives: Monetary inflation

Understanding the inflation problem, by Alasdair Macleod

Rising prices are not inflation. Inflation is expanding currency and bank credit, which in turn leads to rising prices. From Alasdair Macleod at goldmoney.com:

In recent weeks inflation has become a major economic concern. Nearly all the commentary emanating from monetary policy makers, economists, and the media is misguided, believing inflation is rising prices and must be addressed accordingly.

They are only the symptoms of inflation. The true cause is the expansion of currency and bank credit, which, reflected in the US dollar’s M2 money supply has increased substantially since March 2020, and now stands at nearly three times the level when Lehman failed.

After defining the differences between money, currency, and credit which together make up the media of exchange, this article explains how changes in the quantities of currency and credit translate into prices.

The solution to the inflation problem is not price controls, which are always counterproductive, but to return to a regime of sound money. This article shows what must be done to achieve this outcome and concludes that it is impossible to do so without a sufficiently serious financial and economic crisis to discredit government intervention in markets and to then allow governments to stabilise their currencies and reduce their spending to a bare minimum.

Defining inflation, money, currency, and credit[i]

A resolution of the inflation problem requires an understanding of inflation itself. It is an increase in the quantity of the media of exchange, whether it be money, currency, credit, or a combination of any or all of them. It is not a rise in the general price level. That is the consequence of inflation when the media of exchange loses purchasing power.

To avoid misunderstanding, it is important in any discussion about money to provide an accurate definition of what is money and what is not money. Let us clarify this at the outset:

That which is commonly referred to as money is more correctly any form of circulating media used for the payment of goods and services in an economy based on the division of labour. The term “circulating media” or “media of exchange” more accurately represents the common concept of money as the term is used today.

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11 Reasons Why This Was Joe Biden’s Worst Week EVER, by Michael Snyder

Joe is having a tough time with this president thing. From Michael Snyder at theeconomiccollapseblog.com:

Joe Biden has had a lot of bad weeks over the last 12 months, but this week has got to take the cake.  In fact, it is hard to remember the last time that any president had a week that was this bad.  But this wasn’t supposed to happen.  Democrats were promising a return to “normalcy” after the Trump years, but instead virtually everything seems to be going wrong.  No matter where you are on the political spectrum, you should be able to admit that Joe Biden’s presidency is not going very well at all.  At this point, even many Democrats are using the word “failure” to describe Biden, and this is fueling rumors that Hillary Clinton may run again in 2024.

Yes, Biden’s presidency has been such a complete and utter disaster that the absolutely unthinkable could actually become a reality.

Just when you think that things can’t get any worse, somehow they do.  The following are 11 reasons why this was Joe Biden’s worst week ever…

#1 The OSHA Mandate

On Thursday, we learned that the U.S. Supreme Court had voted 6 to 3 to strike down Biden’s cherished OSHA vaccine mandate…

President Biden urged businesses to bring in vaccine mandates on their own and pushed states to ‘do the right thing’ after the Supreme Court voted 6-3 to block his sweeping rules on private companies in a crushing blow to his pandemic response.

The high court did however allow a vaccine mandate for employees at health care facilities receiving federal dollars to go into effect.

The OSHA mandate would have covered approximately 80 million American workers, and countless workers all over the country that would have lost their jobs under this mandate are greatly celebrating right now.

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The Fed Has Triggered A Stagflationary Disaster That Will Hit Hard This Year, by Brandon Smith

The smart money bet is that the stock and bond markets don’t cope well with a stagflationary disaster. From Brandon Smith at alt-market.com:

I don’t think I can overstate the danger that the U.S. economy is in right now as we enter 2022. While most people are caught up in the ongoing drama of Covid-19, a REAL threat looms over the nation in the form of a stagflationary tidal wave. The mainstream media is attempting to place the blame on “supply chain disruptions,” but this is a misrepresentation of the issue.

The two factors are indeed intertwined, but the reality is that inflation is the cause of supply chain disruptions, not the result of supply chain disruptions. If we look at the underlying stats for price rises in essential products we can get a clearer picture.

Before I get into my argument, I really want to stress that this is a precarious time and I suggest that people prepare accordingly. In just the past few months I have seen personal expenses rise at least 20% overall, and I’m sure it’s the same or worse for most of you. Stocking necessities and safe-haven investments with intrinsic value like physical precious metals are a good choice for protecting whatever buying power your dollars have left…

Higher prices everywhere

The Consumer Price Index (CPI) is officially at the highest levels in 40 years. CPI measurements often diminish the scale of the problem because they do not include things like food, energy and housing which are core expenses for the public. CPI calculations have also been “adjusted” over the past few decades by the government to express a more positive view on inflation. If we look at the inflation numbers at Shadowstats, calculated according to the same methods they used in the 1980’s, we see a dramatic increase in CPI which paints a more dire (but more accurate) picture.

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Money supply and rising interest rates, by Alasdair Macleod

Inflate the money supply enough and sooner or later you’ll have rising interest rates keeping up with rising prices. From Alasdair Macleod at goldmoney.com:

The establishment, including the state, central banks and most investors are thoroughly Keynesian, the latter category having profited greatly in recent decades from their slavish following of the common meme.

That is about to change. The world of continual Keynesian stimulus is coming to its inevitable end with prices rising beyond the authorities’ control. Being blinded by neo-Keynesian beliefs, no one is prepared for it.

This article explains why interest rates are set to rise substantially in this new year. It draws on evidence from the inflation crisis of the 1970s, points out the similarities and the fact that currency debasement today is far greater and more global than fifty years ago. In the UK, half the current rate of monetary inflation for half the time — just for one year — led to gilt coupons of over 15%. And today we have Fed watchers who can only envisage a Fed funds rate climbing to 2% at most…

A key factor will be the discrediting of this Keynesian hopium, likely to be replaced by a belated conversion to the monetarism that propelled Milton Friedman into the public eye when the same thing happened in the mid-seventies. The realisation that inflation is always and everywhere a monetary phenomenon will come too late for policy makers to stop it.

The situation is closely examined for America, its debt, and its dollar. But the problems do not stop there: the risks to the global system of fiat currencies and credit from rising interest rates and the debt traps that will be sprung are acute everywhere.

Introduction

Clearly, the outlook is for higher dollar interest rates. The Fed is trying to persuade markets that it is a temporary phenomenon requiring only modest action and that while inflation, by which the authorities mean rising prices, is unexpectedly high, when things return to normal it will be back down to a little over two per cent. There’s no need to panic, and this view is widely supported by the entire investment industry.

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Inflation: A Stealth Tax with No Maximum Rate, by Brian McGlinchey

One of the truly amazing things about governments is how many ways they’ve devised to rob you blind. From Brian McGlinchey at starkrealities.substack.com:

The Federal Reserve’s printing press enables reckless DC spending, and now we’re all paying the price

All across the economic dashboard, inflation indicators are blinking red. Most recently, the Personal Consumption Expenditures (PCE) index, calculated by the Bureau of Economic Analysis, rose 5.7% from November 2020 to November 2021. That’s the biggest year-over-year surge since September 1983.

Many mistakenly attribute today’s rising prices solely to supply chain woes, and government officials are happy to fertilize that mythology—as Kamala Harris reflexively did last week in her rambling, didn’t-do-the-reading response to a question from Margaret Brennan:

[click back to linked article for video]

The truth is, in the words of economist Milton Friedman, “inflation is always and everywhere a monetary phenomenon.” In other words, today’s rising prices are primarily the result of the Federal Reserve’s relentless creation of new money, which serves to facilitate the government’s multi-trillion dollar deficit-spending addiction.

Note, the Fed’s rampant money creation facilitates deficit spending, but, in the end, it doesn’t actually pay for it. Instead, it functions as a massive scam that hides the price of deficit spending by ultimately passing it on to all of us via inflation.

While the new-money effect on prices is compounded by supply chain failures, those failures are themselves driven in part by higher demand fueled by the extra cash in circulation.

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The ugly side of Triffin, by Alasdair Macleod

How a reserve currency can turn into an inflationary nightmare for the reserve currency country. From Alasdair Macleod at goldmoney.com:

Following the Lehman crisis, it became fashionable to cite the Triffin dilemma as justification for inflationary US policies and why they would not undermine the US dollar in the foreign exchanges.

But far from being simply a justification for continual dollar trade deficits, Triffin correctly described a situation which was bound to lead to problems for a reserve currency. This article describes how his analysis was borne out by events during the Bretton Woods Agreement, and the lessons that can be learned from it with respect to the current situation facing the US dollar.

Introduction

In the years following the Lehman crisis, it became popular to refer to the Triffin dilemma. Commentators usually invoked it as an explanation of a strong dollar despite a worsening trade deficit and even for the encouragement of more dollar inflation to satisfy foreign demand. According to Triffin, being the reserve currency and the medium for pricing commodities and international trade, foreigners always needed dollars. Therefore, the US could continue to run a trade deficit without damaging the exchange rate.

At that time, the world was recovering from what many economists have since named as the great financial crisis. It originated in the US residential property market which had boomed on the back of unfettered bank credit expansion and a growing alphabet soup of collateralisations. Central banks, who were meant to be the ringmasters controlling the expansion of banking activities were caught unexpectedly and disgracefully unaware of the expansion of off-balance sheet bank lending. And their understanding of the dangers of securitisations of securitisations of liar loans upon which the marginal pricing of residential property depended was sadly lacking.

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“Bidenflation” Is Systematically Destroying The Middle Class, by Michael Snyder

The guys and gals in the middle’s wages almost never keep up with rising prices. From Michael Snyder at theeconomiccollapseblog.com:

Americans have more money in their pockets than they ever have before. That sounds like really great news, but it isn’t, because the cost of living is rising much faster than our incomes are. In addition, much of the “new wealth” that has been created over the past couple of years has ended up in the hands of the very wealthy, and this has caused the gap between the rich and the poor to grow even wider. As for the middle class, it is being systematically hollowed out by “Bidenflation”, and that process is only going to accelerate during the early stages of 2022.

Personally, I don’t like to use the term “Bidenflation” too much, because it is not entirely accurate. Without a doubt, the Biden administration has taken actions over and over again that have made the inflation crisis even worse. But it isn’t as if Joe Biden and his minions are the only ones responsible for this mess.

The creation of the Federal Reserve in 1913 started us down the road that we are on today. Of course we could have exited this path at any time if U.S. voters had sent politicians to Washington that were committed to abolishing the Federal Reserve, but they didn’t do that.

In 1971, we reached “the beginning of the end” when President Nixon took the U.S. off the gold standard. Today, the value of the U.S. dollar is only a very small fraction of what it was back then.

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Gold and silver prospects for 2022, by Alasdair Macleod

The prospects for gold and silver next year resemble the metals themselves: bright and shiny. From Alasdair Macleod at goldmoney.com:

It has been a disappointing year for profit-seeking precious metal investors, but for those few of us looking to accumulate gold and silver as the ultimate insurance against runaway inflation it has been an unexpected bonus.

After reviewing the current year to gain a perspective for 2022, this article summarises the outlook for the dollar, the euro, and their financial systems. The key issue is the interest rate outlook, and how that will impact financial markets, which are wholly unprepared for the consequences of the massive expansions of currency and credit over the last two years.

We look briefly at geopolitical factors and conclude that Presidents Putin and Xi have assessed President Biden and his administration to be fundamentally weak. Putin is now driving a wedge between the US and the UK on one side and the pusillanimous, disorganised EU nations on the other, using energy supplies and the massing of troops on the Ukrainian border as levers to apply pressure. Either the situation escalates to an invasion of Ukraine (unlikely) or America backs off under pressure from the EU. Meanwhile, China will continue to build its presence in the South China Sea and its global influence through its silk roads. Less appreciated is that China and Russia continue to accumulate gold and are ditching the dollar.

And finally, we look at silver, which is set to become the star performer against fiat currencies, driven by a combination of poor liquidity, ESG-driven industrial demand and investor realisation that its price has much catching up to do compared with lithium, uranium, and copper. The potential for a fiat currency collapse is thrown in for nothing.

2021 — That was the year that was

This year has been disappointing for precious metals investors. Figure 1 shows how gold and silver have performed since 31 December 2020.

Having lost as much as 11.3%, gold is down 6.5%. And silver, which at one stage was down 19.3% is down 15%. Admittedly these returns followed strong gains in 2020, so 2021 could be described as a year of consolidation.

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A Colossal Theft in Pain Sight, by Lawrence McDonald

Where did all that stimulus and Covid relief money go? From Larry McDonald at thebeartrapsreport.com:

What have we done with the $11 Trillion?

We have clients in 23 different countries, but most reside within the continental United States – in recent weeks, we keep hearing countless stories of self-proclaimed 24-hour turnaround testing centers to do a PCR test, then taking more than 80 hours to get the results back. Friends in New Jersey tell us not one pharmacy or walk-in clinic in a 100-mile radius has appointments available in the next week. Home testing has improved but for those traveling overseas – it is a PCR test that is needed.

The question that haunts us now is that, almost two years into this crisis and an $11 Trillion U.S. Fiscal and Monetary spending deluge, we still don’t have an adequate testing infrastructure? It blows us away –  we are still dealing with endless waiting lines, no availability of testing appointments, shortages of at-home tests and overwhelmed testing labs scrambling to process vials.  Where did all that money go?

State and Federal Debts Add Up

In the US, the corona crisis started on January 29, 2020, when the White House initiated its coronavirus task force. Since then, the US has gone from crisis to crisis and the media and our politicians have been obsessed with this epidemic and its consequences ever since. Amidst all the turmoil, the US government has left no stone unturned to throw money at this disaster. The Fed kicked off in early March by lowering interest rates to zero and shortly after began rolled out an alphabet soup of emergency programs. From buying high yield debt to bankrolling bailout checks (PPP loans), nothing was left on the table for our adroit stewards at the Fed. The byzantine maze of fiscal stimuli has left everyone confused. Nevertheless, the total amount of support the Fed has pumped into the economy is best measured by the expansion of its balance sheet. When the Fed finishes its asset tapering program in March of 2022, its balance sheet will have expanded by $5 Trillion. In less than two years the Fed deployed more money than during, and in the 10 years after, the great financial crisis ($3.5TR). This monetary support alone is also more than that of the entire GDP of Japan, the third-largest economy in the world.

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Lessons From An Underground Economy, by J.G. Martinez

You have to wonder how big the black market economy is right now in the U.S. One thing’s for sure—it’s going to get a lot bigger. Just think of all the people who won’t get vaxxed. They’ve got to eat. From J.G. Martinez at theorganicprepper.com:

How is it possible to survive a nation with inflation rates of 20%/month and 1700%/year? The answer? The underground economy. This is the level of hyperinflation we have found ourselves with here in Venezuela, and considering the spread of inflation worldwide, it would be well worth the prepper’s time to glean what we can learn here.

Virtually everything you read dictates inflation on this scale necessitates civil war.

Yet Venezuela hasn’t seen this. Why not? Why are the streets not being taken by armed civilians?

While the main reason revolves around 20 years of disarmament and anti-self-defense teachings, I would argue that there is a second reason we haven’t delved into full on anarchy as well: our underground economy.

Underground economies keep people fed.

I’ve lived in four different and fallen South American countries, and it’s been the underground economy which has kept people going in each case.

When I used to work in the Venezuelan oil industry, our salary was taxed heavily just like everyone else’s. As expected, these taxes can quickly make it hard for a family to pay its bills.

But the underground economy? It’s completely unregulated.

I know guys with a hot dog cart who make much more money than engineers down here. And this isn’t new – our world has been like this for many years now. The guy working with the hot dog cart doesn’t pay taxes. He doesn’t pay rent. And usually, (and this is a now an “accepted” practice) these street vendors will run a wire from some nearby pole for their music and lights.

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