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If I had a dollar for every time I am told America is about to experience hyper-inflation (given with the examples of Weimar Republic, Zimbabwe, Argentina and Venezuela) I might be able to give Bill Gates a “run for his money.”
O.K., not really, but it does become tiresome. So perhaps I can put a small dent in the Henny-Penny, sky-is-falling, phony hysteria, by providing a short, simple explanation of what causes inflations.
Let’s begin with the absolute basics: All money is a form of debt. There is no money that is not debt. When you own a dollar, you own a debt of the United States government. That dollar bill in your wallet is a Federal Reserve Note. The words “bill” and “note” signify debt.
The value of any debt is based, in part, on the value of its collateral. When you take out a mortgage, the bank evaluates the property and the full faith and credit of the mortgagee. Together, they comprise the collateral for the loan.
The collateral for a debt/dollar also is “full faith and credit” — the full faith and credit of the U.S. federal government. This may sound nebulous to some, but it actually involves certain, specific and valuable guarantees, among which are:
1. The government will accept U.S. currency in payment of debts to the government
2. It unfailingly will pay all it’s dollar debts with U.S. dollars and will not default
3. It will force all your domestic creditors to accept U.S. dollars, if you offer it, to satisfy your debt.
4. It will not require domestic creditors to accept any other money
5. It will take action to protect the value of the dollar.
6. It will maintain a market for U.S. currency
7. It will continue to use U.S. currency and will not change to another currency.
8. All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.
If any of the elements of full faith and credit were to change, and the value of the federal government’s full faith and credit were to decline, the value of the debt/dollar would decline, i.e. we’d have inflation. If the full faith an credit declined enough, we’d have hyper-inflation.
Every hyperinflation in history has been caused, not by excessive “money printing,” as is widely and falsely believed, but rather by two events:
- A change in the full faith and credit of the sovereign currency issuer
- A shortage of a critical commodity, usually food, energy, or labor.
Inflation never is caused by increases in the money supply. It always is caused by a change in full faith and credit, or by the supply of a critical commodity.
Each of the title-mentioned nations experienced a political problem, not a “too-much-money” problem, that caused their extreme inflations. In fact, it was the inflations that caused the “too-much-currency” to be created and not the other way around.
Whenever you hear of a nation experiencing hyperinflation, remember that the problem was not caused by excessive spending, but by a reduction in that nation’s full faith and credit and/or supply of critical goods and services.
For the United States, about the only thing that could cause the first hyperinflation in our existence, would be if a reckless fool like Ted Cruz, John Cornyn or some other Tea Party nut, prevented the paying of federal debts (as repeatedly the nuts have threatened to do).
That would cause an extreme change in item #2 of full faith and credit (above), which would debase the value of the U.S. debt/dollar. And we’d have hyper-inflation.
So don’t worry about a “government-‘printing’-too-much-money” inflation; worry about a Cruz/Corwin/Tea Party hyperinflation.
Rodger Malcolm Mitchell
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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.
The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
Ten Steps To Prosperity:
- Eliminate FICA
- Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
- Social Security for all
- Free education (including post-grad) for everyone
- Salary for attending school
- Eliminate federal taxes on business
- Increase the standard income tax deduction, annually.
- Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
- Federal ownership of all banks
- Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.