The Ugly Dirty Rotten Effects Of Inflation

April 13, 2014

Inflation is the dominant monetary policy; this is no secret. Western central banks have publicly targeted inflation for years, as part of financial repression policy (to reduce debt).

This is the underlying (monetary) reason to hold hard assets - precious metals being the easiest of options to hold outside of the system.

The investing public has taken advantage of the inflation meme. Investors count on the Fed to be the lender of last resort. The mainstream believes, without understanding, that monetary policy leaders can and will fix any future roadblocks. If retirement for enough Americans depends on the value of real estate, there is a significant and organized public interest in support of the policy.

Most accept, without much consideration, the grand hypocrisy of the Fed and other programmatic and telegraphed targeting, whether by means of interest rates, unemployment, or GDP - all of which have very little to do with reality. The problem is that inflation policies create a very dangerous kind of non-reality. And, sadly, one that threatens to have long term effects on what remains of the real economy.

The result is not only loss of purchasing power, but loss of quality of life.

Inflation created by real organic growth can be normal when connected with sound money. Money limited by overspending.

There Ain't No Such Thing as a Limitless Free Lunch

Inflation, or money creation, untethered to commodity backing is different.

It has no limits, so it flows according to political will. It goes to projects that may or may not be beneficial; that is, beneficial if they are lucky. But more often than not money flows from printing at the behest of politicians amounts to an unsterilized intervention that threatens to infect the entire system.

Capital Misallocation

While, overall, money velocity may be low, the credit that does make it into the economy blocks the otherwise free flow of capital.

Huge misallocation and artificial liquidity flows lead to lost opportunity, lost workforce, and, ultimately, lost generations. Lower interest rates are used to trigger the flow by indirectly forcing capital to seek out return wherever it can be found.

It is like the little puddles of water in a desert that appear as oases which crop up everywhere - but they are most certainly illusions.

Price inflation of food and energy obviously take the greater toll on those who spend a significant part of their income on these things, such as the poor and elderly living on fixed incomes. Retirees must change consumption patterns based on lowered long term income projections.

Destruction of a Work Force

The labor force suffers as well. Massive corporate profits have not occurred on the heels of real expansion or based in real demand. Employers simply demand more from the workers they employ.

For the uncounted or the able bodied who have disappeared from labor statistics, there is no way to get ahead. In fact, workers fall behind quickly in an age of increasingly more sophisticated technology. Training the work force is a major expense and corporations will avoid it at all costs.

Suffocating the Children

Higher education, another hyper-inflated and unaccounted for sector, adds immense drain on the quality of an economy and a culture. Nowhere has government backing or subsidy caused more damage than to education.

University education curriculum is basically copied from Ivy League models. The rise in education costs has occurred despite the fallen utility and return on investment.

College programs do not need to be competitive. They happily assist incoming students find whatever government backed financial aid that they need. There is no skin in the game here - no real motivation to make their programs more competitive. And, therefore, the future suffers as a result.

And don't forget that Congress enacted new bankruptcy laws that prevent student loans from being discharged in a bankruptcy. In most states, one can walk away from a mortgage with less repercussion than defaulting on a student loan.

Not only has the quality of education suffered but the future generation of producers and consumers, without representation, are lost.

This adds to the evil of expanding money supply, which is really just expanding future promises to pay, thus destroying the world for our descendants and future generations.

Hard assets are a given when there are no signs of reversing the course we traverse. But preparing for the destructive nature of artificial inflation may be the truly insurmountable issue facing current and future generations.


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The melting point for silver is 961.93 °C - 1235.08 °K

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