Why Does the Government Want Inflation Now?
Bernanke keeps telling us that he won't allow deflation to take hold. So to make sure that doesn't happen, he pursues policies at the Fed that assure inflation.
But the thing you have to understand is that the Fed always pursues policies that cause inflation. So there's nothing new in the policies Bernanke is pursuing now. Maybe different, but not new.
As far as different goes, the degree of intensity to which the Fed has resorted to inflation is different than the normal course of business. They've been creating money faster than usual because they feel that if they don't, deflation will take hold and the country will fall into a depression.
As far as this not being a new policy, the Fed always tries to keep the supply of money increasing. That's part of their usual, everyday policy. They want to inflate the money supply all the time. This comes from a belief that an expanding economy needs more money. I think the idea was most clearly stated by Milton Friedman and the economists who pursue policies known as "monetarism."
Monetarism believes that the government should always control the supply of money. And, in fact, they believe that control should be such that the supply of money increases - something like 2% a year on average.
So, as you may remember, if inflation means that the supply of money has increased, then the Fed, pursuing a policy of always increasing the money supply, is always pursuing a policy of inflation. That's clear, isn't it?
But if the Fed is always pursuing inflationary policies, then why does the Fed also want us to think that it's guarding against inflation? Because when it says it's guarding against inflation, it really means it's guarding against high inflation. It wants low inflation, but it doesn't want high inflation.
Now both low inflation or high inflation produce the same result: a loss of purchasing power for our money. Our money will be worth less tomorrow than it is today. That's the way the Fed wants it. It's baked in the cake. And is there a man or woman alive who doesn't know that their money is worth less today than it was yesterday?
Let's stop right here. Just think about what we've already said. And think about whether that seems like it makes any sense? Why would our government want our money to be worth less tomorrow?
There are all sorts of arguments about why the government wants - some say needs - our money to be worth less tomorrow, not the least of which is the fact that the government has so much debt, it can't afford for the value of that debt to increase (which is what would happen if we ever had deflation).
But even more, ask yourself this: Is it right that our government pursues policies that make sure that our money is worth less tomorrow? Isn't it immoral for the government to pursue policies that make sure that the money you honestly earned today is worth less tomorrow? Isn't that a form of stealing from you?
What's worse is that the government already takes a percentage of what you honestly earn through taxes. And let's not now get into a critique of just how efficiently they use that money they take through taxes. The point is, they already take some of your money - sometimes a lot of your money, when you consider federal, state, local, school, property taxes - and all the other taxes we pay.
So having purposely taken a pretty big chunk of your money - money you earned through hard work - is it right that they would consciously pursue policies that they absolutely know - beyond the shadow of a doubt - will result in the money you have left for yourself losing value in the future?
While you might be able to answer the question of why they need so much of your money right now - the amount they take from you in taxes - you have to ask yourself how they benefit from making sure that your money loses purchasing power in the future.
I'm not saying that they pursue their inflationary policies strictly to make sure that your money loses purchasing power in the future. But I am saying that they must know that those policies will lead to that result. And I'm also saying that I don't think that such a policy is either fair or right, no matter what benefit the government derives - or thinks it derives - from it.
But the thing you have to understand is that the Fed always pursues policies that cause inflation. So there's nothing new in the policies Bernanke is pursuing now. Maybe different, but not new.
As far as different goes, the degree of intensity to which the Fed has resorted to inflation is different than the normal course of business. They've been creating money faster than usual because they feel that if they don't, deflation will take hold and the country will fall into a depression.
As far as this not being a new policy, the Fed always tries to keep the supply of money increasing. That's part of their usual, everyday policy. They want to inflate the money supply all the time. This comes from a belief that an expanding economy needs more money. I think the idea was most clearly stated by Milton Friedman and the economists who pursue policies known as "monetarism."
Monetarism believes that the government should always control the supply of money. And, in fact, they believe that control should be such that the supply of money increases - something like 2% a year on average.
So, as you may remember, if inflation means that the supply of money has increased, then the Fed, pursuing a policy of always increasing the money supply, is always pursuing a policy of inflation. That's clear, isn't it?
But if the Fed is always pursuing inflationary policies, then why does the Fed also want us to think that it's guarding against inflation? Because when it says it's guarding against inflation, it really means it's guarding against high inflation. It wants low inflation, but it doesn't want high inflation.
Now both low inflation or high inflation produce the same result: a loss of purchasing power for our money. Our money will be worth less tomorrow than it is today. That's the way the Fed wants it. It's baked in the cake. And is there a man or woman alive who doesn't know that their money is worth less today than it was yesterday?
Let's stop right here. Just think about what we've already said. And think about whether that seems like it makes any sense? Why would our government want our money to be worth less tomorrow?
There are all sorts of arguments about why the government wants - some say needs - our money to be worth less tomorrow, not the least of which is the fact that the government has so much debt, it can't afford for the value of that debt to increase (which is what would happen if we ever had deflation).
But even more, ask yourself this: Is it right that our government pursues policies that make sure that our money is worth less tomorrow? Isn't it immoral for the government to pursue policies that make sure that the money you honestly earned today is worth less tomorrow? Isn't that a form of stealing from you?
What's worse is that the government already takes a percentage of what you honestly earn through taxes. And let's not now get into a critique of just how efficiently they use that money they take through taxes. The point is, they already take some of your money - sometimes a lot of your money, when you consider federal, state, local, school, property taxes - and all the other taxes we pay.
So having purposely taken a pretty big chunk of your money - money you earned through hard work - is it right that they would consciously pursue policies that they absolutely know - beyond the shadow of a doubt - will result in the money you have left for yourself losing value in the future?
While you might be able to answer the question of why they need so much of your money right now - the amount they take from you in taxes - you have to ask yourself how they benefit from making sure that your money loses purchasing power in the future.
I'm not saying that they pursue their inflationary policies strictly to make sure that your money loses purchasing power in the future. But I am saying that they must know that those policies will lead to that result. And I'm also saying that I don't think that such a policy is either fair or right, no matter what benefit the government derives - or thinks it derives - from it.
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