The media never reports the real reason why we have price inflation. They blame it on various factors that ignore the real cause, which is runaway government spending. When money and credit are force-fed into the economy to cover the government’s budget deficits, prices rise. When booms like the housing fiasco are fostered by this loose money, a slump inevitably follows. Money and credit are expanded further to cure the slump. An excess of dollars cause the value of the currency to fall. Imports become more expensive. Internationally traded commodities rise against the falling dollar. Virtually everything gets more expensive. Understanding this process is one of the keys to your financial future.
Richard Russell summed it up, “I believe it’s already dawned on the Fed and probably central banks around the world that deflation has begun to show its face. The central banks are very fearful of deflation. Their answer to deflation is, and will be, to lower interest rates and try to reliquefy their economies. This will entail stepping up the creation of fiat money. There is no limit to the sheer amount of paper that the central banks can create, and as deflation increases its grip on the economies of the world, I expect a virtual blizzard of fiat currencies to be created.”
This week congress debated a $267 billion farm bill. Why are we paying taxes to support every bad manager in overalls, along with billionaire ranchers like Ted Turner? The whole $267 billion of pork should be eliminated. What entitles farmers to money we work hard to earn? Good operators don’t need subsidies.
I was on a radio show and a caller reprimanded me for blaming government deficits on social spending. He claimed they were dwarfed by the cost of the war. Nobody loves the war, but it’s a fact that half the people in the country are subsidized one way or the other. Add on the costs from destroying the family unit among the underclass. Eight decades of reverse incentives contained in social welfare have taken a terrible toll. As Thomas Sowell tells us, “The welfare state has always been judged by its good intentions, rather than its bad results.”