We've Been Swindled, A Peripatetic post on inflation

A Rambling Inflation Primer, From My Twisted Perspective


We talk about inflation as though we all know what it means. Some believe it is simply rising prices, and others believe it to be too many dollars chasing too few goods. There are still others that think inflation is a result of our currency being or growing stronger than the currency of our trade partners; neither of these are correct.
Once upon a time, back before the advent of the internet and before the existence of instantaneous communication, we used rare and precious metals for money. Because they were rare, durable and difficult to mine and process in to beautiful coins and jewelry, they were highly prized. In fact, they were so highly prized that they became a medium of exchange between folks wishing to acquire goods and services. They were so much easier to carry around than your excess chickens and goats that they became accepted as the universal standard of trade around the world, even taking on the characteristic of universal value. That is to say that an ounce of gold in the US would buy approximately the same quantity of goods at home as it would abroad. This system worked quite well for over three thousand years.
Enter the scumbag bankers. Back in the day, a bank was a staid and stoic institution that had the ability to store your excess gold, then loan it out to individuals for their individual business and personal needs. For this privilege, the banker would pay you some percentage of interest, typically somewhat lower than they charged the borrower, thereby making a small profit on the transaction. This system worked quite well for many, many years.
One day, a group of powerful bankers and corrupt politicians got together and decided that if a group of private bankers could operate as an intermediary between the U.S. Government and her People, they could shave a vig off the top of every transaction along the way and become fabulously wealthy. Simply put, this is what happened on Jekyll Island.
Flash forward.
In a nation that must have gold to pay for goods and services, she may only spend that money which is backed by gold; she may not print more. In the early part of the 1970’s America hit a crossroad. We were no longer able to sustain our war in Viet Nam, pay for Johnson’s Great Society and run our government on the money we had coming in from productive citizens paying taxes, meanwhile the rest of the world was demanding that we pay our bills from our ever diminishing gold stockpiles. This was the straw that broke the proverbial camels back. President Nixon pulled us off of the gold standard and declared the dollar to be a dollar by virtue of fiat, and no longer convertible to gold. Well that was that. We had a decade of blazing inflation, an escalation of the cold war and we managed to piss of the Arabs so much that they shut off the oil spigot.
Wait a minute……did I just say inflation?
When we decided that our money would no longer be backed by a hard asset, this meant that our trading partners had to have faith that we would still accept back at value those dollars we used to buy goods from them, and not print so many dollars that their value was diluted. The money supply in the U.S. grows constantly. We are forever printing new dollars to replace worn currency and to add dollars in to circulation. Ostensibly, the practice of adding additional dollars is meant to offset new consumers being born, coming of age and needing dollars for their purchases. What really happens is that our government finally figured out that they were only responsible for the expansion of the money supply for as long as they are in the Congress, and that while there, they could curry favor within their congressional districts by adding sweetheart projects and perks for their constituencies by adding amendments to bills that absolutely had to pass. When we spend what we do not have, then print more dollars to offset the additional spending, we have to make a promise to someone that if they give us those dollars today, we will pay them back in the future with interest. This is why bonds exist. They exist to pay for wars, social programs and general operating expenses that outstrip the money collected by regular taxation.
So now we have a monstrous federal debt, the interest on which now consumes a third of our tax receipts and is headed much, much higher. In order to pay this maturing debt, and to fund our run-away government, the treasury can simply print dollars if they choose to. This is what is happening now with quantitative easing. Our government is printing dollars to buy the bonds they have just printed. In other words, they are inflating the money supply, thereby making every dollar you hold in your pocket a little less valuable. At some point, we will have printed so much money that foreign nations will no longer accept them as a medium of exchange, and we will have successfully bankrupted our nation through inflation of our currency.
All in all, this is a very fucked up system. When we were on a gold standard, the value of gold never changed. Prices rose and fell purely as a result of supply and demand. To expand the money supply, we had no choice but to mine more gold, silver and copper. The accumulation of wealth was safe and simple. There was no way for the government to tax a man by stealth through the artificial inflation of the money supply. When we found out that empire can only get just so big when it has to be paid for up-front, we changed to a system of “faith”. The faith that this bit of paper in my pocket will still buy the same loaf of bread tomorrow.
We were swindled.