Cash is Trash!

[AGENDA21]

THE PICTURE - Your wealth is being stolen due to inflation, period. Whether you like it or not, central banks continue to churn out a ridiculous amount of paper currencies thereby robbing you of your savings. This is a crucial issue which you must understand if you want to survive and prosper over the coming years.

The global economy has severe imbalances with the US heavily in debt and facing record-high deficits. The total debt monster in the US has now grown to $46 trillion, the trade deficit now exceeds $800 billion and the American consumer is swimming in debt. Similar imbalances can be seen throughout the "developed" economies of the West. Therefore, bankers and governments who want to stay in power at all costs have decided to resort to accelerating the rate of monetary inflation. "But why would they do that?" you may wonder. The answer can be summed up in the following words -

Inflation makes debt less formidable and easier to handle.

Allow me to explain. I want you to imagine that your grandmother took out a loan of $50,000 in 1950. Back then, this was a lot of money and your grandmother would have found it quite hard to service and repay this debt. However, due to inflation over the past 56 years and its consequence (decline in the value of money), your grandmother's debt is now much easier to repay as $50,000 isn't worth that much today. So, you can see that with time and inflation, debt becomes more manageable.


Figure 1: Decline in the US dollar's purchasing power (1800-2005)

More in link below:
http://www.321gold.com/editorials/saxena/saxena042106.html

[teryang]

1. This is dominant economic trend today

One question that I have about it concerns real estate prices. Where I live housing prices have seemed to exceed the level of most people to afford. They have stopped selling, period. This appears to have occurred at an interest rate level that is not enough to protect the value of proliferating paper dollars.

Trading in houses seems to have dried up. Will dollar inflation move into other sectors?

[FloridaPat]

3. Electronic prices have dropped every year. Car prices have gone

from $2000 to $30,000. Food is up. Clothing is up but with sales and discount houses, you can still pay the same. Gas is up. Health insurance, etc. The amount of money you pay in taxes is way up. Not much doesn't go up with inflation.

[FloridaPat]

2. Two thing: inflation is the gov't friend & you're assuming wages

go up with inflation.

1. In the 1960's, only 1% of the population made over $10,000. Incomes less than around $3000 didn't pay income tax. The standard deduction was around $2500. Today just about everyone makes over $10,000. Average family salary is $40,000. But it needs 2 people working, not one like in the 60's. The income tax bracets have not risen with inflation and the standard deduction is around $3000. So the gov't is making a ton lot more money than it did in the 60's.

2. When I was in college, I use to work part-time. I made around $7-8 per hour working as a sales person at a department store and as a temporary clerical person. I just got a job with a major home improvement store - $8.50 an hour.

If you were making $8 an hour in 1950 and paying on a $50,000 mortgage (which was a mansion back in the 50's) you would just as much trouble making those same payments today with the same wage.

[lonestarnot]

4. Is this a joke?

[TreasonousBastard]

5. OY! So many errors in so few paragraphs...

The money supply (M1, at least)is NOT the amount of cash printed, but is the total amount of "money" in cash and demand deposits plus a few other small things. The amount of cash in circulation is usually only a small fraction of the total amount of money, and the banks create it by lending deposited money, using the "multiplier effect." This has been going on at least since the Middle Ages when "bankers" held gold in their vaults to protect it from theft and relent it out at interest. Granted, the Fed does have a lot of control over how much of this money is created by controlling reserve requirements and interest rates.

Economic growth will ALWAYS (well, almost always) lead to an increase in the money supply simply because more of it is being deposited and lent out-- money just moving around tends to increase.

Inflation is a very tricky thing and has many possible causes. It's basically because there's more money available than stuff to buy with it, but the causes of that imbalance are arguable in every case. Many, if not most, economists think a little inflation is a good thing if it tracks with growth. Of course, anyone on a fixed or falling income gets burned, but interest is "supposed" to take care of that.

Now, as to tight money, deflation, or just 0% inflation-- again, most economists don't think that's a good idea. One of the major causes of the Depression was the Fed's mistake in tightening money when the supply fell, causing massive bank failures and the loss of operating capital to keep things running.

With deflation, don't forget that incomes fall along with prices and there's no guarantee that there will be a balance there. Just as in the 30's, incomes could fall a lot faster and further than prices and we're all screwed. Also, with deflation comes less capital to invest-- meaning that new jobs are going to much harder, maybe impossible, to create.

Now, the internal and foreign debts are a problem. A big problem, although Chicago and Cato-type economists try to explain how they are no big deal. Agreed that with higher inflation these debts will be easier to pay off with cheaper future dollars, kinda the way many folks think of how they make their own credit deals-- assuming they will be making more money in the future. Paying off a 30 year note (if there are still any 30 year notes) in those future dollars will be dirt cheap if we have a hundred trillion dollar GDP by then. Big "if" though, and it assumes no major interruptions along the way.

The only other alternative, if things don't go perfectly well, is to deliberately revalue the dollar, which some think they are doing in baby steps right now. Hoo-Boy! If we could only retire the debt at 10 cents on the dollar over the next five years...

That, however, has its own problems, obviously, but it just might happen if the Euro takes over as fiat currency worldwide and there's no point in holding up the dollar.

Ya know, we sit around and worry about our little incomes and the price of gas, but would we really want to be central bankers responsible for an entire country's economic survival?