HONOLULU, May 1, 2013 – The world heard two very different conceptions of economics today. In Washington, the Federal Reserve announced that it would “continue purchasing additional agency mortgage-backed securities and longer-term Treasury securities at a pace of $45 billion per month … Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
To translate that into plain English, the Fed still thinks that betting against the future of our children to temporarily boost Wall Street for now is a great idea.
No surprise there.
Half a world away in the Vatican, Pope Francis in his May Day address told followers in St. Peter’s Square “I think about those who are unemployed often because of an economic conception of society that seeks egoistic profit regardless of social justice.” Francis’ statement is a powerful policy insight into what happens to government, business and society alike when a central bank runs amok with the money supply.
Both the Eurozone and the United States are in a state of denial over the destruction of their currencies. The problem with increasing the money supply in the hopes of “stimulating” an economy is that central banks distort everything from the way governments rule their people to how society makes money.
Rose Wilder Lane famously said that when governments attempt to control productive energies, they have no way of knowing real costs and these costs automatically increase until the people can no longer afford to pay them. Inflation makes everything more expensive and it makes everyone frantic in their pursuit for more cash because no money is ever enough to keep up with the central bank.
“Crony capitalism” and “government gone wild” is the inevitable conclusion of an inflationary society. When a central bank artificially increases the money supply by lowering interest rates, the first thing that happens is those who get the money first spend it and raise the prices of goods and services throughout an economy. Those who get the money last receive it only after everything is more expensive, which forces them to spend more and to pursue more money just to cover what inflation has stolen from them.
Inflation causes corporations to engage in unsustainable, risky behaviors that they would ordinarily avoid if unlimited credit were not available to them, thus ballooning their stock prices though their actual production has not increased and they may not even pay out dividends to shareholders. Corporations as a result of inflation also lobby the government to create monopolistic regimes that either regulate their competitors out of business or coerce populations into subscribing to their services.
Inflation causes government operations to become more expensive, triggering legislators to vote for tax increases to raise revenues and prompting governments to leverage everything from future income taxes to public lands just to keep the lights on. This continues until inflation reaches a point where markets ditch a currency and flee to real values, resulting in hyperinflation and the final destruction of a nation.
Why are so many people unemployed? Because inflation is destroying the Western economies and zapping value from all of the productive energies of the people. People can’t work or win in the lose-lose paradigm of an inflationary economy.
As Thomas Paine wrote in a 1786 pamphlet, “There are a set of men who go about making purchases on credit, and buying estates they have not wherewithal to pay for; and having done this, their next step is to fill the newspapers with paragraphs of the scarcity of money and the necessity of a paper emission, then to have a legal tender under the pretense of supporting its credit, and when out, to depreciate it as fast as they can, get a deal of it for little price, and cheat their creditors; and this is the concise history of paper money schemes.”
America ought to take a hint from Pope Francis and get its money supply under control. We are not in a recovery, we are in a runaway vortex to national economic annihilation. Inflation is destroying the dollar and erasing our future, all in the name of greed … and a quick buck.
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