By Shane Van Cleve
What is inflation? If you ever ask someone this question they will usually say “Inflation is rising prices”. But is inflation really rising prices?
Inflation causes rising prices but it is not rising prices. Inflation is an increase in the money supply. As the money supply increases, so do prices. But why do prices increase as the money supply increases?
Let me give an example.... Say there is only one piano in the whole world. That one piano would be priceless. People would pay big money to buy it. But because there are many pianos in the world, the value for them goes down and so does the price.
Now let’s apply this principle to money. As the money supply increases the value of money decreases. But on the other hand, the value of books, CD’s, desks, and refrigerators does not change. So because the value of the dollar goes down, it takes more of them to buy the CD because the value of the CD stayed the same.
Recently it seems as though prices have been going through the roof. Why is that? It’s because of inflation. Who is inflating? The government. You see, the U.S. government claims the authority to inflate. If they want money, then they just print it. Of course, they could raise taxes to get the money but the citizens could get mad so they just print the money they need.
But why is the government inflating? Much of the inflation by the government is to pay for the war in Iraq and Afghanistan. Of course if we go to war with Iran, then they will just inflate even more.
Now sometimes inflation gets out of control and the prices shoot up. This has been happening recently and some problems arise. People start hanging on to their money. They wait for the prices to go back down before they spend it.
Because this has been happening recently, President Bush decided to present his “Economic Stimulus Package”. He decided to send everyone a check from the government to “stimulate” the economy. His goal was to cause people to spend money. The government is $9,000,000,000,000 in debt! So where did he get the money to give to us? He printed it! Which, of course, made the price of things go up even faster.
So what is a solution to this problem? Well, one solution is to get rid of paper money and revert back to the gold currency. If we just took that one step, all our economic problems would go out the door. Why? Because you can’t print gold. The value of gold stays the same.
“But, I thought the value of gold is increasing” you may be saying. Nope, it’s just that the value of the dollar is decreasing.
Now unless the government stops inflating the prices will continue to rise. The next step towards a depression is when people realize that prices aren’t going back down. So they start spending their money on anything they can get their hands on. Now why is that? Because they start realizing that their money is becoming valueless. They “trade” it for something that has value.
Some of you may have heard of the Hungarian inflation of 1946, when the money lost all its value. During that time it was cheaper to wallpaper a wall with money than it was to buy wallpaper. It took so much money to buy things that people had to carry their money around in wheelbarrows. You may have heard of the story the man with the wheelbarrow full of money who turned his back to do business. When he returned someone had dumped the money on the ground and had stolen the wheelbarrow. Why was the wheelbarrow stolen and not the money? Because the wheelbarrow had more value than all that paper money.
The last step to depression is when people reject money. It has no value. That’s when the government changes the currency and inflation starts all over again.
But this cycle can change. However, it can only change if we get a tried and true currency. And that tried and true currency is gold!
"Gold doesn't emerge from a printing press. Gold cannot be mass produced to provide an "energetic presidency". That's why governments have no use for it." ~ George F. Smith