INFLATION: The Hidden Tax

We’re feeling the effects of inflation now, in energy (price at the pump), groceries, and virtually everything.  Our heating bills are likely to be way up this winter, especially for gas and fuel oil users.

How did inflation “happen” to us? 

Milton Friedman said repeatedly and emphatically that inflation is always and only a monetary phenomenon.  If the supply of money grows faster than the economy, then inflation must eventually happen.  It’s happening…because of all the money “printed” over the past decade or two.

Dr Friedman also taught that it’s hard to predict when it will start, and it’s really hard to stop it once it takes off.

How did the money supply grow faster than the economy?  I believe the worst of it began in 2008, with the policy of Quantitative Easing…a way of creating money out of thin air.  Inasmuch as the amount of Quantitative Easing (QE) exceeded any real growth, the forces of inflation began to build up.

A recession may be a reason for a little QE, but the “free money” habit of QE is hard to quit.  Over the past year alone, over $4 Trillion has been “printed,’ without running a printing press.  Years prior, it was over a trillion a year…and there’s no end in sight.

When the money supply grows faster than real economic growth, then we get inflation.  Period. 

There is no other possible result from growing money faster than the economy.  Only INFLATION.

Inflation will continue until the Fed stops QE.

Government spending adds to the pain we’re experiencing.  The debt ceiling used to be a limit. 

Today, many in Congress now want to ELIMINATE the debt ceiling!  This plays hand in hand with increasing, fostering, and continuing inflation.  Government spending does not produce real growth: instead, it impedes real growth.

We the People must insist we take the tough medicine, and stop printing money.  If we don’t, we may experience hyperinflation and economic collapse.

Once we take the tough medicine, i.e., when the printing and spending stop, it will take some time for the effects of inflation to settle through the economy.  It will be difficult…but not impossible. 

In a year or so, prices will be stable again, and so will the dollar.  However, the damage done to the dollar, though stopped from continuing, will still be there.  Your savings will have been robbed by the hidden tax of inflation.

The only way to get that back is for the money supply to hold steady, while the real economy catches up to the supply of money.  That will appear like impeded growth, but it will be real growth.

It’s up to us to insist our elected officials stop spending and stop pressuring the Fed to print them more money. 

It’s up to us to vote for folks who pledge to learn, understand, and follow sound economic principles, such as those so well taught and explained by Milton Friedman.

It’s up to us to stop asking or expecting our federal and state governments to give us more free stuff, subsidies, and handouts.

For real economic growth to happen, it’s up to us to be productive as a society, and to insist our elected officials stop playing favorites, reduce our taxes, shrink government spending proportionately, and eliminate many of the arduous restraints on our economic and political freedom.

The cure (stop printing money) is politically painful to many – members of both political parties in the United States are guilty of printing money. But this is real, and this is serious.

Sometimes I think of inflation as a disease, caused by a bad health habit.  The bad habit may not make one sick at first.  The bad habit is hard to stop.  The bad habit can cause illness.  The illness won’t go away until one kicks the bad habit.  The illness is inflation.  The bad habit is printing money in excess of growth.  The cure is to stop printing money.