According to figures released today by the Commerce Department, Americans have experienced a 2% price increase in the last three months. Without accounting for food and energy prices, inflation is at an overall 1.3 % in the last three months. Interestingly, when looking at food and energy prices, we see there has been a price increase of 18.7 % when viewed against March of 2009. This means you are paying almost a fifth more for food and energy from last year.
What does all of this mean? For one, it means the cost of living is on a sharp rise. It would normally be hard to explain in a weakened economy how we are seeing such a sharp rise in prices. People are spending less overall than they were in previous years, as many struggle with the effects of a down economy. This should have the effect of lowering prices and the cost of living, and it would, if not for the inflation factor.
Many in the mainstream like to define inflation as a rise in prices. This assessment ignores the cause and identifies the symptom. Inflation is more accurately defined as an increase in the supply of money. As laws of supply and demand dictate, when there is more money competing for the same amount of goods, prices rise. So we actually see rising prices as a result of inflation. Simply put, the Federal Reserve, our nation’s central bank, prints more money, and we in turn have to pay more to feed our families, heat our homes, and fuel our vehicles.
This is by no means a new phenomenon in American history. Since the Federal Reserve bank opened for business in 1914, the dollar has lost 95% of its value. This is a confusing track record for a “quasi-government” agency who is mandated to maintain low inflation and stable prices. All Americans can likely attest to the fact that cost of living is on the rise, while wages struggle to keep up, if they keep up at all. For many Americans, jobs have been lost and wages have actually decreased as part of employer austerity measures. Small businesses are disappearing. How are Americans supposed to keep up with the harmful effects of inflation, such as an 18.7% price increase in food?
The truth is, though the Federal Reserve might be inflating the currency, (printing more money), so they can bail out Wall St. and help our government fund trillion dollar wars and entitlement programs without raising taxes, the people who are harmed most by inflation are the poor and middle class. Whereas a wealthier family might not have a great deal of trouble adjusting spending habits to accommodate a 20% price rise in food, a family with a strict budget or on a fixed income might now find themselves unable to meet their other monthly obligations. A family in the lowest income brackets might find themselves suddenly unable to make ends meet. This family may be confused, and rightly so, as they haven’t lived more extravagantly – they just find the prices to provide for daily needs have skyrocketed. Such are the hidden and insidious effects of inflation. Inflation is nothing less than a hidden tax on the people, harming those most vulnerable in our society.
Inflation also punishes people who save and invest by diluting the value of the dollar. Why should you save your money in a bank account, likely bearing under 1% interest, when through inflation, the dollar is becoming less valuable? If you save money, you literally lose money. Americans find themselves in a situation of spend, invest, or lose money. The higher the rate of inflation, the faster money is being devalued. At what point does even the wisest of investments fail to keep up with inflation? Through a reckless Federal Reserve monetary policy, we can only expect inflation to be on the rise.
Even more startling than the 18.7% price increase reported by the Commerce Department today are the numbers that show the United States money supply, M3. These figures are no longer published by the Federal Reserve on their website, perhaps because they are “the best description of how quickly the Fed is creating new money and credit”, according to Congressman Ron Paul. According to Shadowstats.com, a website which still estimates M3, in the below chart, you will see M3 hit 18% between 2009 and 2010. Meaning, the total money supply was at times increasing by 18+% monthly. It has been estimated that the monetary base has more than doubled through Fed action. Although inflation can be unpredictable in proportion to the money supply, it can come as little surprise that we have experienced an almost 19% price increase between this year and last year.
John Williams' M3 Estimate
Sadly, with the way the Federal Reserve and a willing Congress have irresponsibly increased the supply of money and credit, we should only expect more inflation in the near future. With these numbers in front of us, and as evidenced by the ongoing collapse
in Greece and the EU, we should not think the recession is over, as so many claim it is
. On the contrary, through the “magic” of inflation the true problems have only been papered over with new money. There is much evidence that this time it is not going to work, and this is why we see the collapse continue in other economies around the world. This illustrates the potent danger a “quasi-government” organization like the Federal Reserve can wreak on our economy through endless creation of new credit. When powerful interests such as banks and financial institutions get into trouble, they call on the Federal Reserve to “bail them out”. The Fed, free of public scrutiny, is more than happy to do so by creating new money.
No person or group should have control over the supply of money and credit. These kinds of things are best left to the free market. The free market long ago chose gold and silver as the best money
. The framers of the U.S. Constitution knew this, as well as the inherent dangers of paper money, like our federal reserve notes of today. They had experience with runaway inflation during the war for Independence
, and that is why our Constitution strictly calls for gold and silver to be used as money
. One of the most important qualities of gold and silver, and a key reason the Fed and most politicians oppose sound money, is that they can’t be easily counterfeited. Instead of granting more power to the Federal Reserve, as is being discussed in Washington
, we should begin talks about instituting a sound monetary policy based once again on gold and silver. This will go a long way to putting us on a sound financial footing for the future, while rewarding smart financial behavior instead of failure.