What Say You, Mr. McCain?

Money Supply Economics

By Robert Ringer

As the U.S. dollar continues to fall against the euro, South African rand, and other currencies, Fed Chairman Ben Bernanke is sending strong signals that the "central bank" may lower interest rates again to "avoid a recession." A recession? Are you kidding me?

As I said in Part X of this series, "The truth of the matter is that for many years we have been experiencing what I would call an 'invisible depression,' a depression camouflaged by easy credit. But it's becoming harder and harder to hide the truth."

Continuing to inflate our currency is the only way politicians can hope to put off judgment day, but the tradeoff is that prices will continue to rise ever more rapidly. And that, as I have repeatedly stated, is really just a hidden tax on the uninformed masses.

The hidden tax of inflation allows the government to continue its politically expedient redistribution of the wealth policies and other non-wealth producing programs with virtually no constraints. Unfortunately, in the early stages of a prolonged inflation, most people are fooled into thinking that government has "stimulated the economy," because they hear such babble nonstop on their TV sets every evening.

In fact, sadly, many economists still believe in the Keynesian (anti-Ludwig von Mises) philosophy that inflation of the currency increases employment and production and improves the health of the economy. They not only totally ignore the long term effects of inflation, as well as its moral implications (fraud and theft), they also are naive enough to believe that politicians will stop increasing the money supply once the economy is again "healthy."

There are many fallacies in such thinking, a few of the more obvious ones being:

1. The inflation "spiral" causes voters to continue to clamor for higher wages and more handouts in order to "keep up."
2. The obsession with getting reelected motivates politicians to satisfy voter demands, which means more inflation of the currency — which, in turn, leads to still higher prices.
3. Since the economy is to a great extent artificial (in that it is "supported" by deficit spending and valued in paper dollars), it is only a matter of time until the laws of economics set in. Meaning higher prices and lower purchasing power, which leads to less production. And less production, in turn, leads to still higher prices and less employment.

Nevertheless, from a politician's standpoint, deficit spending creates short term artificial prosperity, designed to win votes. It can take a year or two for prices to rise enough to make voters mad, but by that time the election, hopefully, has been won.

In days of yore, when deficit spending was merely a pre election scheme, the new administration would cut back on spending once the election was over. This, however, is no longer possible, because voters are addicted to government benefits and do not want to hear about cutbacks.

Which is why the likely next president of the United States has repeatedly stated, "I believe health care is a right, not a privilege." A generous man, indeed — with your money. In other words, he's guaranteeing an increase in fiat currency, not a decrease.

One of the things that commonly confuses people who try to understand what inflation is all about is that it is (theoretically) true that the quantity of paper money in "circulation" makes no difference. That is to say that if the government handed everyone double the amount of money he now has, prices and wages would roughly double in a short period of time, and no one would be any worse off.

Likewise, if government took 50 percent of the currency out of circulation, prices and wages generally would fall by 50 percent, and no one would be hurt. But that is not what happens with an artificial increase in the supply of fiat currency. The harsh reality is that everyone does not receive a proportionate percentage of the newly created "money." And those who receive the new paper (or electronic) dollars earliest gain the most from them.

The big losers are the last people to receive the newly created currency. They are the ones who are taxed the most — invisibly. This is so because by the time the new money circulates to them, prices have already risen considerably. Being at the bottom of the inflationary spiral, they are its main victims.

Quite naturally, the individuals who get caught at the bottom of the spiral demand that their wages be increased in order to "keep up." And their increased wages, in turn, help to increase prices. Thus, the spiral continues.

Keep in mind, however, that these increased wages do not cause an increase in prices. The real cause is the increase in the money supply, which decreases everyone's purchasing power, thus the need for higher wages to keep up with rising prices.

Above all, never lose sight of the fact that the cause of our constantly increasing money supply is an increase in government spending. And, as in all elections since Mao Tse-Roosevelt's, presidential candidates are again making it clear that this suicidal practice will continue unabated.

Which leaves me with a question for the supposedly anti-big-government gentleman still in the race: Mr. McCain, if you are truly cut from a different cloth than the Democratic faction of the Demopublican Party, please be specific about which government "entitlement" programs you are planning to reduce — or, better yet, eliminate. It might just get you elected. An increasing number of Americans might actually be ready to hear the painful truth.

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