Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Inflation 101

Economics / Inflation Jan 15, 2010 - 01:57 AM GMT

By: Puru_Saxena

Economics

Best Financial Markets Analysis ArticleWe want all our readers to understand that inflation is a disaster for society and it only benefits the elite.  In fact, we will go even further by stating that inflation is a hidden tax, an insidious crime against the public. It is the easiest way for any government to confiscate the savings of the public and for generations, wealth has been transferred in this manner.  


In our opinion, inflation is evil and the sole reason why human beings have become modern-day slaves. Remember, money is supposed to be a store of value, however due to reckless central bank-sponsored inflation, it can no longer fulfill this critical role.  This is precisely the reason why human beings are never satisfied with what they have because nobody knows what their savings will buy them in ten or twenty years time.  So, rather than enjoy their lives, the vast majority of people continue with their never ending pursuit of acquiring even more money!  Unfortunately, nobody questions the inexplicable loss of the purchasing power of their savings, thus, central banks get away with financial murder. 

It is our contention that inflation distorts the economy, it brings great harm to the public and it encourages speculation and mindless risk-taking.  In fact, inflation acts as a poison for retired people since they are no longer able to earn more money in order to maintain their standard of living.  So, thanks to inflation, most senior citizens are unable to enjoy the fruits of their labour.  

Before we delve further, we want to make it absolutely clear that inflation is defined as the increase in the quantity of money and debt within an economy.  And contrary to what the governments want you to believe, inflation is certainly not an increase in the general price level within an economy.  Instead, an increase in the general price level within an economy is a consequence of inflation. Allow us to explain this subtle yet critical difference:

For the sake of simplicity, let us assume that America’s money-supply is US$100 and this is the amount available to buy the five oranges its economy produces. Common-sense dictates that under this situation, each orange will cost US$20.  Now, let us introduce a banking-cartel called the Federal Reserve, which is able to extend credit (via its debt-based fractional reserve banking system); thereby inflating the supply of money within America to US$1,000.  Under this scenario, with a 10-fold increase in money available to purchase the same amount of produce, each of the five oranges will now cost a whopping US$200!         

Hopefully, you can see from the above simplified example, how an inflation in the supply of money and debt causes prices to increase within an economy. 

So, if inflation is terrible and makes life difficult for the vast majority of people, why is it allowed?  The truth is that the banking cartel lives off this inflation by collecting interest on the loans it creates ‘out of thin air’.  Believe it or not, banks lend you money which did not exist prior to you borrowing this money and you pay them interest for the pleasure! Thanks to the ‘genius’ of fractional reserve banking, banks are able to create loans equal to ten times the amount of money deposited with them!  Therefore, the banks collect interest on a loan-book which is ten times the size of their deposit base and they can do this because they know that not all their depositors will want to withdraw their savings on the same day.

In order to ensure the continuity of this fraudulent system, central banks and governments hoodwink the public into believing that an expansion in the supply of money and debt is not inflation. Rather, they mislead the public by claiming that the consequence of inflation (increase in prices) is in fact inflation!  Look; prices within an economy do not just rise on their own.  After all, an orange is still an orange, it does not change.  What changes is the purchasing power of paper money which is used to buy that orange.     

Furthermore, in its attempt to manipulate the masses, the establishment does everything in its power to suppress the official ‘inflation barometer’. Governments achieve this goal by shamelessly doctoring their Consumer Price Index (CPI) and Producer Price Index (PPI) calculations via various seasonal and hedonistic adjustments.  Figure 1 highlights the discrepancy between the CPI-U published by America’s Bureau of Labour Statistics and the SGS Alternate CPI which is calculated by Shadow Government Statistics using the old methodology.  As you can see, over the past 20 years, prices have been rising much faster than the officials would have you believe. 

Figure 1: Governments understate the inflation menace

 
Source: John Williams’ Shadow Government Statistics

Apart from diminishing the purchasing power of savings, inflation also creates unfair advantages for the elite.  When a new cycle of inflation (expansion of money-supply and credit) commences, usually the governments and banks have first access to this newly created money and they obtain this cash at a time when prices within the economy are still depressed.  Therefore, these powerful entities are able to buy inexpensive goods by using this newly created money.  Now, by the time this surplus money has permeated through the economy and reached the masses, prices have usually risen significantly by then.  Accordingly, the public gets access to the additional money at a time when prices are much higher than the commencement of the inflationary cycle! 

Let there be no doubt, inflation is a total disaster and our world will be better place without this reckless money-creation.  Contrary to official dogma, our world experienced tremendous progress during the 19th century and during that period, there was no inflation.  Figure 2 shows the changes in America’s Consumer Price Index (CPI) over the past two centuries.  As you will observe, the CPI fell for most of the 19th century as the purchasing power of the American currency rose.  However, since the formation of the Federal Reserve in 1913, the CPI has exploded causing the purchasing power of the US Dollar to spiral downwards. .  

Figure 2: Who says inflation is dead?

Source: Federal Reserve

In summary, given the fiat-based monetary system and banks’ vested interest in expanding credit, we have no doubt that most nations will experience very high inflation over the coming decade.  Accordingly, we suggest that long-term investors protect their purchasing power by allocating capital to precious metals, commodity producers and fast-growing businesses in the developing world.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets.  In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com

Puru Saxena

Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients.  He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2010 Puru Saxena Limited.  All rights reserved.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in