Congress: The Engine of Inflation
Once Again it's Scapegoat Time
FUTURECASTS online magazine
Vol. 10, No. 6, 6/1/08.
Scapegoats for the credulous:
| Pay no attention to that Congress behind the curtain -
blowing smoke and spreading confusion while mindlessly spending the nation into bigger and bigger deficits. Those
deficits are the primary cause of increasingly painful levels of inflation, so it's time that your
attention be diverted to scapegoats.
These policies have now continued during periods of both Republican and Democratic Party control, so there is enough blame to go around.
To divert blame from themselves, Congressmen sanctimoniously seek out scapegoats - OPEC, big oil companies, market speculators, economic expansion in China and India.
Surely, it would be ungrateful of us to blame our gallant legislators for the inflationary results of all the benefits they have so generously extended to us from the public treasury.
Congress must divert blame for the inevitable results
of more than half a dozen years of Keynesian budgetary deficits and the
expansionary monetary policies required to monetize much of those deficits. These
policies have now continued during periods of both Republican and Democratic Party
control, so there is enough blame to go around.
Inflation is a process that is not so easily calibrated or contained. Moreover, one cost of phony statistics is that they cease to be an accurate guide to policy.
How can you know what "real" inflation adjusted interest rates are if price inflation statistics are being grossly understated?
The government's Keynesian economists become the "authoritative voices" that provide people with authoritative misinformation on inflation and other economic matters.
Governments actually dearly love inflation. They
will generate as much of it as they can get away with. They hire Keynesian
economists to provide justification. The electorate seems to tolerate - and the economy seems to be able to
function with - approximately a 2% rate of price inflation in addition to the
inflation that eats up all the substantial price benefits of productivity gains. So that's what governments aim
Governments dearly love this method of taxation because most people do not understand that the resulting rise in prices is in fact a tax imposed on them by their government.
| Inflation is in fact a tax by which governments
take valuable goods and services from the economy in return for nothing more
than expansion of the fiat money supply.
Governments dearly love this method of taxation because most people do not understand that the resulting rise in prices is in fact a tax imposed on them by their government. There is even a pleasant time lag between the monetary inflation and the resulting price inflation that further confuses the credulous. Most don't even realize that government is appropriating for itself all of the price benefits of productivity increases. See, Understanding Inflation. This ignorance allows a government to deflect blame onto convenient scapegoats.
The Federal Reserve thus has no choice but to exchange increasing amounts of newly created cash for securities issued by the government.
The Fed may not be the basic cause, but it is an absolutely essential enabler of the government's inflationary policies.
Only Congress - by budget cuts that are real and substantial - can avoid or substantially mitigate the severe recession that will be required to end the debasement of the dollar and bring this period of inflation to an end.
However, the Federal Reserve is not an independent
agency. It is a mere creature of Congress. Especially in an election year,
Congress would not be amused by the recession that its budget deficits would cause if
their interest rates were not being held down by monetary expansion. The
Federal Reserve thus has no choice but to exchange increasing amounts of newly
for securities issued by the government. The monetization efforts required to
prevent government debts from pushing interest rates to depressive levels
inevitably become increasingly desperate - and increasingly inflationary.
It is Congress that is the driving engine of
this inflation. The rapid escalation of government spending since the terrorist
attacks on 9/11/01 has been domestic as well as
military, and the military spending increase has been remarkably
modest. It was from a very low base, and we are in a real war, after all.
That some of the tactics have been more than a little questionable - as
FUTURECASTS has frequently noted - does not change that fact.
This is chronic inflation, and chronic inflation is solely the result of an expanding money supply. It cannot occur without that.
Who is to blame? Congress is to blame!
The dollar is the world's primary
reserve currency, so dollar devaluation transmits inflation world wide.
Double digit inflation is increasingly afflicting a wide array of developing
nations, threatening these nations with an economic train wreck. All of
their gains during the last two decades are at risk.
The innumerable ways in which inflation undermines
economic and political systems are becoming increasingly evident, just as they
did during the Great Inflation of the 1970s. Economists who claim that we can
live with inflation - who persistently underestimate the manifold difficulties
caused by inflation and grossly overestimate the ability to control inflation -
thereby confess a deplorable ignorance of economic history.
Because the dollar is acceptable as a reserve currency around the world, the U.S. is able to a certain extent to print gold.
Because of irresponsible budgetary and monetary policies, the U.S. is throwing away a tremendous advantage that has helped it finance all its 20th century conflicts and all its vast social programs.
A weak dollar leaves the U.S. increasingly vulnerable to financial and economic crises.
Because the dollar is acceptable as a reserve currency
around the world, the U.S. is able to a certain extent to print gold. Without
this, price inflation would have afflicted the nation far more quickly and far
more severely since the New Deal.
It does not matter what the individual crisis happens to
be. The untoward impacts on the U.S. will be primarily due to the weakness of
the dollar - and we know who is responsible for that.
Vast amounts of purchasing power is pouring out of the nation or being dissolved by price inflation. as the Federal Reserve frantically creates more currency for its debt monetization activities.
The Federal Reserve can only be as strong as the dollar, and the dollar is beginning to resemble a wet noodle.
Oil producing nations with substantial surpluses in
their international payments have no incentive to expand production. Disruptions in the production of oil and other commodities as a
matter of national policy are now increasingly possible. If they occur,
Congress will blame those who refuse to provide us with the commodities we
Investors - pejoratively referred to as
"speculators" - are thus induced to exchange their depreciating
dollars for appreciating commodities. Entities that have the ability to
inexpensively store commodities will actually take commodities - especially
precious metals - off the market to use as a store of value - a role the dollar
no longer reliably plays. This aggravates the inflationary bubble of rising
demand and prices accompanied by falling supply.
Vast amounts of purchasing power is pouring out of the
nation or being dissolved by price inflation as the Federal Reserve frantically
creates more currency for its debt monetization activities. Eventually, the Fed must
lose this battle. It is already hesitating to act with the aggressiveness with
which it fought recession at the beginning of this decade.
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Copyright © 2008 Dan Blatt