Tuesday 5 April 2011

The reason for inflation

Why inflation is so common -- it?s a hidden wealth-redistribution from the poorest to the richest. Propaganda holds that it?s an indicator of a healthy economy -- ie, we?re told that the opposite of an inflationary economy is an depressed one. But that?s all hogwash. In commodity money systems inflation is anomalous. In fiat money systems it?s systemic precisely for the benefit of the first receivers of the money.

Inflation is by definition an increase in the money supply. But new supplies of money don?t enter the economy uniformly. In reality it gets injected at specific points in the economy, and the first takers of the new money get richer at the expense of the last takers, because the first takers benefit from additional money that has not yet depreciated in value, but the last ones suffer an overall devaluation of their wealth that is not compensated for by the very diluted amounts of new money that trickles down to them.

The first takers of money are governments and those subsidized by them (GE, big food, big oil, etc), central banks, large commercial banks, and their most important clients. So now you know why these groups don?t oppose centrally-planned inflationary policies.

The solution is to stop the reserve banking system and return to commodity money. And the best way to accomplish this is simply to establish competing monies in the economy. Good money will chase out the bad.


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