What is Inflation?
Some would say it is “higher interest rates on loans” – possibly!
Others would say it is “the cost of goods going up” – again maybe!
According to the Oxford English Dictionary ~, the word “INFLATION” means;
Increase in available currency, resulting in INFLATION!
So literally INFLATION means to inflate the currency!
HOW IS THIS ACHIEVED?
First we must look at money itself, which in the modern world is paper currency or it’s official name is FIAT CURRENCY! The word FIAT meaning by Government decree. Basically the Government passes a law that says these notes are exchangeable for goods or services.
One of the attributes of money is a store of value or wealth! What if you were able to print or create electronically extra currency and place it into the community? Well since 1971 under President Nixon the United States has exactly been able to do so! They did this by removing the last remnant of a GOLD STANDARD backing the US dollar.
The key word being STANDARD. You see in a basic sense Fiat currency is a certificate issued against GOLD sitting in a nations treasury. The GOLD STANDARD kept Banks & Governments honest, because the only way they could place more FIAT currency into the system was by having more GOLD in their treasury. The only way a nation could acquire more Gold for it’s treasury is by having a Productive based economy! The basis for a Productive based economy is “Labor”! Labor either directly produced Gold through mining or the produce of Labor could be directly exchanged for Gold! Yet our Western economies today are Service based economies not Productive based. (Production article)
LOSS OF PURCHASING POWER
The more the currency is inflated into the system via the printing press or electronically created through debt, the more it waters down the purchasing power of each monetary unit. Eg; In 1971 one USD would buy you 1/35th of an ounce of Gold because in 1971 Gold was $35 per Oz, today one USD will purchase you 1/440th of an ounce of Gold again because an Oz of Gold is currently today $440 per Oz! Increased money supply is literally like adding water to paint. The more water you add to the paint the more coats of paint it takes on any given surface to achieve the same coverage.
The general public in all cases of inflation in the short to medium term are always deceived into thinking that their assets are becoming more valuable, yet it is only taking more money to purchase the same goods & services.
The main symptom of inflation is DEBT. Think about this, how do Banks & Governments get this extra money supply into circulation? The Banks drop the interest rates, by doing this they seduce the public into borrowing therefore creating the massive debts western governments & it’s citizens have today. Also think about this, they create this extra money out of thin air effectively making the borrower an agent for the Bank, because under law the lender is the true owner, not the borrower!
Lets take a look at the Fraud of inflation.
– “The first panic for a mismanaged nation is inflation of the currency;
the second is war.
– Both bring a temporary prosperity; both bring a permanent ruin.
– But both are the refuge of political and economic opportunists.”
– Ernest Hemingway.
Here is an example of the fraud. Remember how I previously mentioned the Gold Standard kept the Banks & Governments honest, it minimized the Inflation rate to practically Zero! Now in WWII, the debt of the United States government was $259 billion dollars by 1945, up from $43 billion in 1940. That’s a $216 billion dollar increase in just 5yrs! This was during the time when gold was officially $35/oz. That’s 7.4 billion oz. of gold equivalent. Gold is usually quoted in tonnes, so, that comes to 230,000 tonnes. That’s the value of the dollar debt of the U.S. government at the end of WWII.
Now according to the World Gold Council FAQ’s all the gold mined in the history of the world up to 2001 is a mere 145,000 tonnes.
Therefore, it is impossible for the U.S. government to have borrowed anywhere near 230,000 tonnes of gold. The loan was a fraud to begin with!
The same is true for Germany before WWII there massive inflation called the Weimar Republic funded their Military arms build up literally by fraud.
STANDARD OF LIVING
What has this fraud & deception done to our standard of living and social well being?
World inflation is running at between 7 & 8% on average, in some countries it is as high as 60%! Yet wage inflation as far back as 1950 is only running at approximately 2.5%! The inflation has been skillfully masked by manufacturing efficiency and formerly productive based nations relocating there productive industries to 3rd world countries over the last 25yrs! In the 1950’s & 60’s countries such as Britain, United States, Canada & Australia had 75%+ productive based economies and now have gone to less than 25% productive bases to predominantly service economies!
I personally believe this has now come to an end and the average individual is not able to keep up with the rising costs of living.
Eg; the cost of electricity, food, beverages, petroleum, gas and medical care! TAXATION are at all time highs! This is creating a situation where individuals are falling further behind, they are using more debt, they are borrowing or extracting more equity from their homes to maintain their standard of living.
Industry & Government are also affected. We currently have Copper, Zinc, Steel, Coffee, Corn, Soy, Platinum, Palladium, Coal, Oil & Gas just to name a few at 25yr HIGH’s! This then filters through to not only the cost of our goods going up but also higher Taxation because the Government has to meets it’s rising costs as well.
However before this happens government has three ways of obtaining money. Unfortunately increasing taxes is not a popular choice. Governments that increase taxes generally are not re-elected in their next terms of office. Because taxes are unpopular with the people, governments resort to an indirect means of taxation. It is what we know as inflation. If the government can find a means of depriving resources without the direct knowledge of its subjects, they will do so. In effect what the government resorts to is a form of counterfeiting. By creating money “out of thin air,” the government is creating its own money that wasn’t deprived directly through taxation. Counterfeiting is simply another name for inflation.
Inflation creates no social benefit for society. It is simply a means of redistributing wealth from producers to nonproducers. Inflation creates no new wealth. No new goods or capital stock are created by it. Wealth is simply transferred to those who benefit first from the creation of the new money. This is usually the bankers and the financial system through fractional reserve banking or the government through debt monetization. It takes time for inflation to work its way through the financial system and the economy. Those who receive the new money first profit the most from it. By the time the expansion of money works its way through the system in the way of higher prices, the people are the last to know. The inflation profiteers have long since made their profits. Society as a whole must now bear the cost of that inflation through higher prices.
However, in order to keep playing the game and transferring the people’s money, the inflation profiteers must keep the people deceived. That is why all government and central bank actions are shrouded with an air of mystery or secrecy. In his book “Secrets of the Temple,” author William Greider says it well by stating, “Like the temple, the Fed did not answer to the people, it spoke for them. Its decrees were cast in a mysterious language people could not understand, but its voice, they knew, was powerful and important.” The Public’s confusion over money and its ignorance of money politics were heightened by the scientific pretensions of economics. Average citizens simply could not understand the language, and most economists made no effort to translate for them.”
My point being to maintain the inflation deception, it is important to keep people confused!
The over supply of money causes Inflation which manifests itself in the Investment arena by stealth. For instance most stock market portfolio’s between 1995 & the yr 2000 were returning 15 to 20% per annum, the same has been true from the yr 2000 forward seeing double digit returns in Real Estate! Yet few see this as Inflation.
The present American dollar is only 69% of the value it was in 2000 when we adjust it for inflation! If you adjust the Dow Jones index in the same way, a 10,500 point Dow is really about 7200 points in inflation adjusted dollars, the same is true for people out there holding dollar denominated assets like bonds, stocks and real estate. Yet most people in the markets still think they are making money.
Over time we are looking at a building inflationary period on top of the current inflation, our financial engineers are backed into a corner, they have no other means of defending the existing economy other than to use the printing presses and finding more colorful ways of seducing the public into so called easy credit!
The average people in our communities are starting to recognize it. When this happens we will see extra ordinary high appreciations in GOLD & SILVER as well as gold & silver shares!
I would like to end with a quote from an Author of a book named “Jens O. Parsson’s”. The name of the book is “Dying of Money.” It perhaps explains best where we are today and where we are headed.
“Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and an ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.” – END QUOTE.
So on that note I would say to readers and investors alike, “Plan accordingly for the days ahead.”
by Simon Heapes