Inflation, All Governments’ Best Friend | Eastern NC Now

Inflation, All Governments’ Best Friend

BY: HOOD RICHARDSON

Yes, inflation is the best friend of all governments, from the feds in Washington, DC to the dog catcher in Washington, NC. All inflation, from the Federal Reserve’s goal of generating two percent inflation each year to the rank twenty percent or more that came from the COVID scam, is music to all government coffers’ ears. These steady increases make year-to-year budgeting easy. Governments do not have to ask for more money, they get it automatically from increased prices, incomes and profits. All (Name one that isn’t.) governments increase spending every year. Those bureaucrats have to have raises in addition to all those increased services they are “giving to you”.

I don’t know who or whatever logic was used to decide two percent is the right number. Why is it not one percent or even zero percent?  Zero percent is the stable currency rate, that rate helps us commoners.

Two percent inflation means that money halves its buying power every 35 years, not 50 years. The reason is that two percent is a compounding number. Who is willing to halve his savings or wealth every 35 years?

Inflation has not been two percent during my lifetime. It is a lot more. For example, when I was about 15 years old, I could buy a four-ounce Baby Ruth candy bar for 13 cents. That was 70 years ago. That same candy bar should have doubled in price two times since then. That means the candy bar should cost 52 cents today. The cost is more than two dollars. A prime sirloin steak could be had for $2.35 per pound. That steak should cost $9.40 today. It is $14.35 per pound instead.

The inflation rate has not been two percent; it has been a lot more. Government works hard to make us believe inflation is only about 2.7 percent today, this is not true either. The reason is there have been major changes made to the way inflation is calculated. Items that have inflated rapidly have been removed from the calculations in order to make the public believe inflation is low. Political leaders, presidents and other politicians, need to be reelected. They cook the numbers with the help of the Federal Reserve by removing inflationary items to make themselves look good.

One theory of the setting of interest rates is that the rate should, at a minimum, be the rate of inflation plus an amount for risk, plus a fair return on the use of the money. There are some other factors in this theory, but these are the three big ones. Take the purported inflation rate (2.7%), plus a prime rate of risk of 2.0%, plus a reasonable return of (3.0%), the prime rate should be about 7.7 percent. If the goal were to have a stable currency the inflation rate should be zero. Then the prime would go to 5.0 percent.

Five percent is a reasonable interest rate; however, the Federal Reserve has fostered inflation by reducing the rate to almost zero during the past few years.

Interest rates have a huge effect on the economy. Banks can justify lending twice as much money on a five percent rate versus a 10 percent rate. Lower rates allow more money to be turned loose in the economy.  When rates get too low, more inflation sets in. That is because there is more money chasing the same amount of goods.

I do not remember any great debates about setting the inflation rate at two percent. The public went along with two percent because it looked like a small, innocent number that could not affect anything. Had our leaders had the strength of character to make sure inflation was not more than two percent we would not have the financial disaster we now have. That is an inflation rate much higher than two percent and a 37 trillion-dollar national debt to say nothing about state and county debt.

The combination of agreeing to an inflation rate of more than zero percent and the separating of monetary policy from the gold and silver standard removed all shackles and restraints from the Federal Government.  Money no longer had to be backed by anything other than “the good faith of the government”. This will probably work well as long as lenders and merchants are willing to accept our unstable currency.

There is a new risk. Bitcoin, which is backed by nothing. It cannot be held, found, or measured because it is on the ether of the internet. This system of money is open to fraud in all of its worst forms. It has the potential to take down our entire financial system should calls for payment be made that cannot be fulfilled.

At present the US currency is the best currency in an unstable currency neighborhood. Our currency standing will be strong as long as we are the most powerful nation on earth. Should we be challenged by a serious war or stronger economy or by our own economic weakening, our strength will rapidly deflate.