Thursday, January 27, 2011

High Prices And Fiat Money

First let me point out the obvious. The goods and services that have seen the greatest price inflation over recent years coincides with deep government involvement in these same markets.

Let's begin with Real Estate. The government and the private Federal Reserve offer very cheap money to just about anybody to buy a home. Suddenly millions of previously unqualified home buyers enter a Real Estate market with the same amount of houses available to buy. This central bank Jerri-rigging caused home prices to explode due to simple demand/supply dynamics.

Next look at higher education. Government offers very cheap loans to just about anybody to go to school. Here again the supply of higher education institutions is the same but the supply of buyers of college is artificially increased by providing money to any moron who will put down the comic book long enough to fill out the applications.

Moving on to medicine the federal government offers pretty much free health care to everybody over 65 and to the poor and disabled. However, the government doesn't actually provide care but rather pays private providers like doctors to do the medical work. Unfortunately the government only pays the medical providers a pittance and only after completing costly paperwork requirement unnecessary for actual medical treatment. To compensate for the loss of revenue, doctors simply raise the price for their limited time for everyone else seeking medical care.

Government meddling in economic affairs has many ways to drive up prices. Insurance is mandated by government through law but generally using market sharing monopolies restricting consumer choice of providers. So government makes us buy things which have not increased in availability and we see prices skyrocket.

We could look at food stamps and here again government food stamp programs offer free food to the poor but only pay a percentage of the market price to the grocery store and again only after much official paperwork has been completed. The supply of food remains flat so the artificial increase in poor customers must drive up the price for everybody who actually pays.

Put simply, the government and Federal Reserve Board create fake money right out of thin air which has the effect of a honey pot available to certain industries such as the just mentioned Real Estate, education, medicine, insurance industries, etc. None of these commercial endeavors operate as non profits and follow market signals to price their goods and services. That means as long as your goods are selling off the shelves as quickly as you put them there prices are going to be raised. So normally, historically speaking, the government and central bankers responsible for these distortions in the economy will demonize and call for price control like Nixon with the gas lines of the 70's. These same financial criminals just mentioned are already shaming the poor dupes who bought the homes at inflated prices for supposedly being greedy.

When are we going to hold the real culprits responsible for this quagmire - the government and the Federal Reserve Board?


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