Up to this point, I have been sounding off about irresponsible borrowing and lending practices, and some of the Nanny Statism that drives same. Allow me to talk about inflationary monetary practices. You, intrepid reader, probably have what is IMHO one of the biggest day-to-day, pedestrian level contributors to inflation in your possession right now. Credit cards (and the broader category of credit) are the single most destructive force in our economy (aside from the aforementioned Nanny State, ipso facto). On the micro-level, this is shown by consumer loans and other credit vehicles; on the macro-level, it’s typified by fractional reserve banking, Federal budgetary deficit spending, and the Fed’s unique ability to create money out of thin air: fiat money (or, “That $100 bill is worth $100 because I dang well say it is!”).
All of these practices contribute to inflation (which is, of course, devaluation of the dollar) due to the “simple” law of supply and demand, the touchstone of capitalism, driving consumer markets like gazelles before the cheetah – but somehow never, publicly and in a readily digestible fashion, apparently, linked to our currency. Maybe it’s because the dollar is the benchmark by which everyone judges value of goods and services. But it’s subject to the same market forces.
Extending credit allows the lender to make up money where there was none before, whether for a house, a car, or a loaf of bread. It artificially bolsters the financial viability of the lender, making him look like he has made more in sales, or whatever marker of profit he has, when in fact he has replaced capital, stock, or time and energy expenditures with nothing.
In the same way, when the Fed starts churning out the greenbacks to, say bail out the mortgage industry, it shows in the international currency markets. If OPEC pumps out more oil, the price-per-barrel of oil goes down. If Detroit assembly lines went into overdrive, the price-per-unit of cars would (theoretically) go down (until it hit the marginal returns wall). That is, consumers would pay less for the product. We, using the dollar as the exchange medium, just can’t see it directly. The inflated, devalued dollar becomes apparent only as prices for goods and services rise.
Gold is a good example; this graph shows a comparison of gold prices over two six-year periods, separated by 20 years. Gold prices can be manipulated, like those of any other commodity, but the biggest changes in gold prices derive from the relative strength of the dollar. Land is another one – not houses, land – that tends to hold value against monetary cycles, because, rumor has it, they ain’t making any more of it.
Or an apples-to-apples comparison: the Department of Energy says that national average price of gas is $3.11/gallon. The current price of silver is $14.50/ounce. (Gas is here, silver is here) That means an ounce of silver would buy about 4 1/2 gallons of gas. In 1962 (45 years ago), silver cost $1.19/ounce, while gas cost $.31/gallon; an ounce of silver would buy you about 4 gallons of gas. This is inflation: the actual cost of goods and services has not gone up so much as the value of the medium of exchange (the US dollar) has gone down, largely due to the introduction by the Fed of billions of new dollars at a whack.
(By the way, this is the reason it’s taking you so much more to fill your tank or put food on the table, not the greedy “ay-rabs” or oil companies, and not because all the illegals are being deported.)
So what can we do about it? Lobby your paid corporate shills elected representatives to dismantle the Fed, to put us back on the gold standard, and to repeal the laws that force banks into taking on excessive risk in their lending practices, as well as fractional reserve lending. And stop using credit: pay cash for groceries, pay cash for cars, pay cash (or as much as you can) for houses.
Or, you could just vote for Ron Paul.
