Some Long-term Consequences of Inflationomics
By promoting inflationomics, central banks around the world have succeeded in raising prices and diminishing the purchasing power of their respective currencies. Some of the long-term consequences of this policy have been:
- Higher food prices. This has caused food riots in the parts of the world that are living at a subsistence level. The riots, in turn could destabilize parts of the world that supply a relatively large percentage of the world’s oil. (Ever wonder why oil-rich nations are food poor?) This could raise oil prices, which, in turn will raise the cost of food production, making food prices even higher.
- In developed nations, older folks must delay retirement because their savings are no longer enough to live on during retirement. This is because most retirement funds are denominated in inflatable paper currencies, not precious metals.
- Adjustments have been made in the way governments calculate the inflation rate, in an effort to keep wage and retirement benefit increases low. By excluding food and oil prices from cost of living adjustments, governments put the pinch on retirees, Social Security recipients, and employees whose income is pegged to the “official” lower inflation rate, rather than the real inflation rate.
- As prices rise, many businesses are unable to raise their prices quickly enough to keep pace with price inflation. Consequently, many businesses fail. As businesses fail, unemployment rises. As unemployment rises, fewer people pay taxes and more people collect unemployment compensation. As fewer people pay taxes and more people collect unemployment benefits, states receive lower tax revenues and higher unemployment expenses resulting in tough budgetary decisions. Those decisions may lead to austerity measures that trigger social unrest (riots). Riots often cause property damage (another loss to society).
- It becomes more difficult to make ends meet. People have to move faster or put in more hours to get the same amount of work done (real income) as they used to. In short, as it becomes more difficult for individuals to make ends meet, people: A. gamble/speculate more. B. steal more. C. work more jobs. D. all of the above.
- Interest rates eventually rise because lenders must take into consideration the fact that they are being paid their interest in ever-cheapening currency (currency with a lower purchasing power). To compensate for the cheaper currency, lenders must charge more (a higher rate of interest). When interest rates rise, it becomes more costly to borrow money and thus more expensive to conduct business.
- Consumer goods become scarcer and the types of things governments want (weapons, aircraft, fuel, military uniforms, food, transportation, personnel, information, bandwidth, etc.) take priority over the things civilians want. As a result, government becomes more important and expands greatly as government expansion of the money supply occurs. The newly-printed money is spent on government priorities first.
- Insurance payouts don’t cover the cost to cover the insured losses. The loss of a car, house, or arm may not be covered by a policy in which the coverage hasn’t been increased for years. Furthermore, with the ever rising cost of health care, health insurance may not cover all the costs associated with a long-term illness. And, of course, premiums rise as the coverage needs to rise to cover the higher costs of treatment.
- Instead of raising prices for goods, some manufacturers supply a lesser quantity of goods for the same “old” price. Consider laundry soap, beer, ice cream, rice, canned tuna, toilet paper, paper towels, and lumber (how long has a 2” x 4” not been a full 2” x 4”?), to name a few items.
- Rising precious metals prices. Gold and silver have been used as money for thousands of years. Paper money is a relatively recent substitute that has usually ended with hyperinflation and the issuance of a new currency. As the world re-learns that precious metals are a better money than paper currencies, precious metals prices (relative to paper currencies) will continue to rise—as the demand for a sound money grows.
- When governments try to encourage certain behavior (buying a house, for example), it misallocates resources. It acts without regard to market demand and encourages production with below-market rates of interest for borrowed money. (After all, it can just print more money/credit at no cost.) Eventually there is a glut of houses (often referred to as a bubble). In time, when there are no more qualified borrowers, unqualified borrowers also borrow money and buy houses as well. And, then, when interest rates go up (as they eventually must), those unqualified borrowers default, which, in turn, jeopardizes the lenders’ creditworthiness and solvency. When banks no longer know who is creditworthy, they stop lending and there is a meltdown of the economy (burst bubble). (Of course, the government thinks it can fix this with a little more money!)
- Because governments are instruments of force, they eventually try to use force on everyone. That means not only foreign countries, but also its own citizens. After starting numerous foreign wars, it will eventually find ways to declare wars on its own citizens and their property; e.g., war on drugs, tax cheats, the rich, big business, people acting suspiciously, hooligans (a favorite in Russia), property that commits crimes (civil forfeiture), hoarders, and terrorists (anyone who strikes fear into the hearts of bureaucrats), to name a few.
Robert Jackson Smith