The Coming Inflation

With the trillions in spending recently passed by Congress and another 3.5 trillion proposed by the Democrats the country is bracing for a reemergence of inflation. Being almost 30 trillion in debt at this point and running a large annual budget deficit the United States can only print money to pay the increasing debt and history tells us that debt levels like we have started accumulated, if continued, will lead to hyper inflation. Further, the government/big business cabal, through the Federal Reserve, has already robbed responsible persons in the country who are savers by artificially keeping interest rates at low levels. This steals wealth from savers by only allowing artificially low interest to be earned on their savings. At the same time it allows the government and big business to pay much lower interest rates on their large debts making them easier to service, big business more profitable and encouraging even more government debt mostly on welfare program spending whose cost is ever increasing due to inflation. The government debt eventually has to be paid back either through increased taxes/fees or devaluing of the currency by printing money and thus the future is robbed to pay for current spending that is many times just wasteful, impoverishing the future.

In regard to inflation, there are many examples in history of the effects of printing excessive amounts of money. The most relevant is Germany of the early 1920s. Saddled with a large reparation payment owed to the Allies and other costs from losing World War I a Socialist leaning government enacted large new social welfare programs at the same time that it had no money to pay. To finance the gap, the Reichsbank printed increasingly large amounts of money that led to hyper inflation. In 1914, as World War I started, the German mark stood at 4.2 to the dollar. By 1920, shortly after the war ended when the excessive printing of money started, it took 65 marks to buy one dollar. Over the next 18 months inflation and the mark stabilized somewhat as foreign speculators bought marks thinking Germany, the third largest economy in the world and normally a very conservative county, would come to its senses and straighten out its finances. However, the spending and printing of money only increased dramatically and inflation kept rising. The foreign speculators bailed out, losing most of their money, as the currency kept decreasing in a downward spiral.

People started using German marks as wall paper as they were virtually worthless. By 1922 the mark was 7,600 to the dollar. By August 1923, a dollar could buy 620,000 marks, by November 1923 it took 630 billion marks to buy one dollar. A simple ride on a Berlin street car which had cost one mark before the war was now set at 15 billion marks. By the time it took to drink a cup of coffee in a cafe the price might double. Every morning big trucks drove out of the Reichsbank with loads of currency and drove factory to factory to shovel out pay to the workers who were given half an hour off to buy anything they could before prices went up again. The rich industrialists did well initially, their large holdings of real assets, land, factories, and stocks of goods soared in value while inflation wiped away their debts. Conversely, those that held the business and government debt, many conservative people in the middle classes, lost much of their savings as the debt was paid back in increasingly worthless marks. Many workers also did well at first as their wages were kept up with inflation initially and unemployment was low with all of the stimulus. Business profits soared with large dividends paid even as the standard of living of most was starting to collapse. As Germany kept printing money to pay its deficit spending, by 1922/1923, when the currency lost all value, commerce collapsed for lack of a viable currency. An inefficient barter economy started up and most suffered extreme hardship at that point. People had trouble obtaining even the most basic goods such as food and coal to heat their homes. Speculators, who were able to buy hard assets such as land and buildings at bargain prices, often because they had access to foreign currency that had not depreciated, made large profits.

The moral of the story is that any money spent/borrowed by government will have to be repaid eventually, either directly through taxes/fees or through the currency being devalued by printing money, which is effectively a tax on everyone. Further, if spending continues wildly the currency can eventually be destroyed. While America is not at that point yet due to a very large economy whose currency can absorb some inflation for a while, inflation has already risen dramatically over the last few months. This effectively lowers everyone’s wealth. We need to get our wasteful spending and printing of money under control or we will risk sacrificing our prosperity and more importantly future generations prosperity.