Saturday, June 16, 2007

Inflation

Inflation

This is just a quick lesson about inflation. Inflation. You hear the word all the time but the vast majority of people, including most college educated professionals, haven't a clue about the definition of inflation. Ask for a definition of the word and normally smart people begin babbling about multiplier effects and macro-economics versus micro-economics, etc. However, inflation is a simple concept. Whenever a government prints more money than the value of all goods and services in society they are inflating the money. More stable governments like England place a high value on NOT inflating the money. The British and Swiss have been around a long while following this approach. That's because the more extra money you print up the less value it has. For example, if the government prints up twice as much money as the economy's value that would be 100% inflation. That is the approximate amount the US government has inflated our money over the last decade or so. So dollars, being our worker credits, are now worth half as much forcing us to pay twice as much for most commodities and services. Naturally, since you must make more money just to stay in the same place, economically speaking, you are shoved into a higher tax bracket. So governments get a double benefit from inflating the money but we get screwed twice. If the government goes too far printing money the economy collapses. Hugo Chavez is printing lots of this mad money so his days are numbered. However, our government has walked the inflation tightrope and may have gone too far as well. Two ominous signs don't bode well for us. First, the US government stopped reporting on the money supply in the economy and also many nations are moving away from using the dollar in lieu of other currencies.To sum up, most Americans think gasoline is too expensive. But the value of gasoline has remained stable over decades. It's the value of our money which has dropped.

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