Some Words On Inflation

“Inflation is always and everywhere a monetary phenomenon,” said Milton Freidman. What he likely meant is that inflation is the increase in the supply of money relative to the supply and demand for goods and services that money is traded for.  Rising prices are not inflation; rather they are the effect of an inflated monetary base.

Inflation – expanding the money supply – is caused by the government.  Inflation allows the government to pay for things they couldn’t normally afford through direct taxation.  But make no bones about it…inflation is a form of taxation.

Through inflation the government covertly confiscates the savings of its citizens.  Where the United States is concerned, because dollars are a global phenomenon, when the U.S. Treasury and Federal Reserve act together to increase the money supply, they tax dollar holders the world over.

There are only two ways for the government to expand the money supply – by borrowing money from lenders or by borrowing money from the Federal Reserve.  The first way is honest, though not always desirable.  The second way is deceptive.  The first way involves an open capital market transaction.  The second way involves printing money up out of thin Continue reading →