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U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Only Central Banks Can Create Inflation

Economics / Inflation Nov 04, 2007 - 12:34 AM GMT

By: Mario_Innecco

Economics We think the way inflation is presently defined goes a long way to helping central banks and governments perpetuate the debasement of currencies via the over issuance thereof. Prior to the 1980's The Merriam-Webster Dictionary defined inflation as: “an abnormal increase in the volume of money and credit resulting in a substantial and continuing rise in the general price level”.


Nowadays The Merriam-Webster Dictionary defines inflation as: “a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services”. The new definition does not seem that different but notice how inflation is now “a continuing rise in the price level…” instead of “an abnormal increase in the volume of money…”.

This change in definition has allowed central bankers and politicians to control people's expectations of inflation . Defining inflation as rising prices and measuring rising prices through government measures like the C.P.I. (consumer price index) has allowed central banks and governments to fool people into believing that inflation is under control because the basket of goods and services in the C.P.I. keeps getting adjusted over and over again in order to keep the index from showing the real effects of inflation. We recommend people to take a look at John Williams' website shadowstats.com to learn more about how statistics like the C.P.I. have been adjusted over the years.

Only through the over issuance of fiat currency can inflation take place and only through central banks can fiat money be issued. When there are no central banks the banking system is limited to the amount of currency it can issue because the supply of gold is finite. Currency issued by banks is limited to the amount of gold on deposit and if a bank over issues, the value of its currency or note will drop below its par value. If a bank wants to stay solvent under a free market system, where there is no central bank to bail it out, it better have enough gold specie to cover its demand deposits. It is the discipline of the gold-backed free market system that keeps inflation naturally in check.

As one can see monetary inflation is only possible when governments give monopoly powers to a bank of issue or central bank and forces people to accept the fiat currency through the legislation of legal tender laws. Felix Somary, one of the most influential bankers in Europe in the early 1900's once said: “the state alone is responsible for inflation: inflation without government, or indeed against government, is impossible.” (1)

(1) “The Raven of Zuerich - The Memoirs of Felix Somary.” C. Hurst & Company, London, 1986, pg 98

 

By Mario Innecco
ForSoundMoney.com

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.

Mario Innecco Archive

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