Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Inflation 101

Economics / Inflation Jan 15, 2010 - 01:57 AM GMT

By: Puru_Saxena

Economics

Best Financial Markets Analysis ArticleWe want all our readers to understand that inflation is a disaster for society and it only benefits the elite.  In fact, we will go even further by stating that inflation is a hidden tax, an insidious crime against the public. It is the easiest way for any government to confiscate the savings of the public and for generations, wealth has been transferred in this manner.  


In our opinion, inflation is evil and the sole reason why human beings have become modern-day slaves. Remember, money is supposed to be a store of value, however due to reckless central bank-sponsored inflation, it can no longer fulfill this critical role.  This is precisely the reason why human beings are never satisfied with what they have because nobody knows what their savings will buy them in ten or twenty years time.  So, rather than enjoy their lives, the vast majority of people continue with their never ending pursuit of acquiring even more money!  Unfortunately, nobody questions the inexplicable loss of the purchasing power of their savings, thus, central banks get away with financial murder. 

It is our contention that inflation distorts the economy, it brings great harm to the public and it encourages speculation and mindless risk-taking.  In fact, inflation acts as a poison for retired people since they are no longer able to earn more money in order to maintain their standard of living.  So, thanks to inflation, most senior citizens are unable to enjoy the fruits of their labour.  

Before we delve further, we want to make it absolutely clear that inflation is defined as the increase in the quantity of money and debt within an economy.  And contrary to what the governments want you to believe, inflation is certainly not an increase in the general price level within an economy.  Instead, an increase in the general price level within an economy is a consequence of inflation. Allow us to explain this subtle yet critical difference:

For the sake of simplicity, let us assume that America’s money-supply is US$100 and this is the amount available to buy the five oranges its economy produces. Common-sense dictates that under this situation, each orange will cost US$20.  Now, let us introduce a banking-cartel called the Federal Reserve, which is able to extend credit (via its debt-based fractional reserve banking system); thereby inflating the supply of money within America to US$1,000.  Under this scenario, with a 10-fold increase in money available to purchase the same amount of produce, each of the five oranges will now cost a whopping US$200!         

Hopefully, you can see from the above simplified example, how an inflation in the supply of money and debt causes prices to increase within an economy. 

So, if inflation is terrible and makes life difficult for the vast majority of people, why is it allowed?  The truth is that the banking cartel lives off this inflation by collecting interest on the loans it creates ‘out of thin air’.  Believe it or not, banks lend you money which did not exist prior to you borrowing this money and you pay them interest for the pleasure! Thanks to the ‘genius’ of fractional reserve banking, banks are able to create loans equal to ten times the amount of money deposited with them!  Therefore, the banks collect interest on a loan-book which is ten times the size of their deposit base and they can do this because they know that not all their depositors will want to withdraw their savings on the same day.

In order to ensure the continuity of this fraudulent system, central banks and governments hoodwink the public into believing that an expansion in the supply of money and debt is not inflation. Rather, they mislead the public by claiming that the consequence of inflation (increase in prices) is in fact inflation!  Look; prices within an economy do not just rise on their own.  After all, an orange is still an orange, it does not change.  What changes is the purchasing power of paper money which is used to buy that orange.     

Furthermore, in its attempt to manipulate the masses, the establishment does everything in its power to suppress the official ‘inflation barometer’. Governments achieve this goal by shamelessly doctoring their Consumer Price Index (CPI) and Producer Price Index (PPI) calculations via various seasonal and hedonistic adjustments.  Figure 1 highlights the discrepancy between the CPI-U published by America’s Bureau of Labour Statistics and the SGS Alternate CPI which is calculated by Shadow Government Statistics using the old methodology.  As you can see, over the past 20 years, prices have been rising much faster than the officials would have you believe. 

Figure 1: Governments understate the inflation menace

 
Source: John Williams’ Shadow Government Statistics

Apart from diminishing the purchasing power of savings, inflation also creates unfair advantages for the elite.  When a new cycle of inflation (expansion of money-supply and credit) commences, usually the governments and banks have first access to this newly created money and they obtain this cash at a time when prices within the economy are still depressed.  Therefore, these powerful entities are able to buy inexpensive goods by using this newly created money.  Now, by the time this surplus money has permeated through the economy and reached the masses, prices have usually risen significantly by then.  Accordingly, the public gets access to the additional money at a time when prices are much higher than the commencement of the inflationary cycle! 

Let there be no doubt, inflation is a total disaster and our world will be better place without this reckless money-creation.  Contrary to official dogma, our world experienced tremendous progress during the 19th century and during that period, there was no inflation.  Figure 2 shows the changes in America’s Consumer Price Index (CPI) over the past two centuries.  As you will observe, the CPI fell for most of the 19th century as the purchasing power of the American currency rose.  However, since the formation of the Federal Reserve in 1913, the CPI has exploded causing the purchasing power of the US Dollar to spiral downwards. .  

Figure 2: Who says inflation is dead?

Source: Federal Reserve

In summary, given the fiat-based monetary system and banks’ vested interest in expanding credit, we have no doubt that most nations will experience very high inflation over the coming decade.  Accordingly, we suggest that long-term investors protect their purchasing power by allocating capital to precious metals, commodity producers and fast-growing businesses in the developing world.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets.  In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com

Puru Saxena

Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients.  He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2010 Puru Saxena Limited.  All rights reserved.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in