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Is Inflation a Man-Made Disease?


We Had This Unpleasant Dream:
In it, we are surrounded by a host of working people. They appear to be from all walks of life: janitors, scientists, butchers, movie stars, singers, cabinet builders, soldiers, doctors...


They are all working very hard at their craft. They seem happy.

It's been a long time since we've seen people from so many different income levels all together in one place. It's as if we are back in time when the neighborhoods were built around something other than income levels. It's the 1950's-60's maybe. 

People from many different
working roles

Then our
 
dream switches to another scene.  
Old Time Safe

The people are all very old now.  Grey and aged, they are gathering around an old-time safe.  A hand is opening the safe and it reaches in and grabs a wad of paper money. The money is stacked in wads like the banks do it.  It has an inscription: "Federal Reserve Note." We think about dollar bills that used to read, "Silver Certificate."

But now the hand reaches out to the group of workers with a wad and squeezes it.
Money from life savings

Money mysteriously disintegrating
The crowd gasps at what happens next. The stack of money crumbles into fine bits of paper. It falls to the floor and scatters like confetti.


There is a feeling of fear in the air. These wads of money represents the savings of the people. It looks as if the money disappears into thin air. They are aghast with trepidation. This money is their lifetime of labor, their basic

survival for the future.
Loss of Life savings

Our Personal Awakening...
We awaken from the dream asking ourselves what it means. What is this dream trying to tell us? What would cause this saved portion of a worker's wages to disintegrate over time? We are left with a feeling that some kind of scam has taken place. 


We speak about this dream to others. We are told that the problem is inflation.


But What if Inflation is NOT Normal? 

What if, as in the dream, inflation is some sort of hand manipulating the currency to be worthless over time?

We do some research and come up with the following graph:

(click to enlarge)
Inflation nearly non-existent 
from founding of U.S. till WWI...
The above graph shows how there was little or no inflation in consumer prices except during times of war (fiat currency is often printed during wartime) and after the creation of the third central bank in the United States, The Federal Reserve. 

Inflation accelerated after 1971, as the United States was forced to end the right worldwide to redeem dollars for gold. This created a cascade of free floating or 'fiat' currencies and a pandemic of inflation.


We Don't Think Inflation is Normal...
Historically, true inflation has only occurred in economies when more currency is suddenly introduced into the system. During the exploits of the Spanish Conquistadors, gold was taken from the Americas and transported to Spain. At that time gold was the currency. The sudden influx of gold into Spain produced authentic inflation. 

During the American gold-rush, when silver and gold were the currency here, a similar phenomenon occurred.  

When inflation occurs any other time, it is because the currency is being intentionally inflated.  Currency is inflated a variety of ways. One of those ways is to create loans out of thin air. This process is often called "fractional reserve banking." We go searching the internet for ideas about this.  




What is Fractional Reserve Banking...?
Essentially, fractional reserve banking allows a bank to create a loan as long there is a fraction of the amount of the loan on deposit. If the bank loans $100, it needs to have $10 on deposit within, or with the Federal Reserve.  Fractional reserve banking is an outgrowth of the original practices of fraudulent goldsmiths.

Fraudulent Goldsmiths Started It...
In the time before modern banking, all banking occurred through goldsmiths who held individuals' gold in guarded vaults.  Goldsmiths would then issue paper vouchers to the gold's owners representing the gold held in deposit.  The vouchers were easier to conceal, carry and trade large amounts of gold without fear of loss.
Goldsmith

The 10% Rule...
Over time, goldsmiths discovered the 10% rule.  That is, only about 10% of the owners of the gold they held in deposit ever came to reclaim it at once.  To capitalize on this, goldsmiths would print up excess vouchers that were not backed by any gold and loan those at interest.  Of course, all this worked well until word got out and fearful depositors showed up in mass to get their gold.

In those days, goldsmiths caught in this kind of fraud were put to death.  And the means thereby were rather gruesome.

The Emergence of Banks and Fiat Money...
Over time, societies all over the world began to withdraw gold backing from the issue of paper certificates, making the certificates "fiat," meaning "money by decree."
Banks Create Money
by making Loans



Still using the 10% rule, banks, which evolved from the goldsmiths, began issuing loans without gold backing. If they had $10 on hand, they could issue $100. The $100 could then be spent, deposited by the recipient and now could result in more loans. This multiplication of loan money, created essentially from thin air, is how our economy runs today. And there is nothing illegal about it.

From Fiat Loans Comes Inflation...
Lauded by many of the new school economists, fiat money is seen as a way to expand the economy by making more money available for economic growth. The concept is to loan out fiat money for the production of goods and services. Over time this will allow the economy to "catch up" to the excess money supply with newly produced goods and services.



Modern economic theory abandons
the theory that labor precedes money

But as economies shifted to this practice over the last 100 years, a disease-like condition has arisen. Economies have moved from growing and expanding through the production of goods and services to the appearance of growth from expansion of unnatural asset bubbles resulting from inflation. These bubbles involve increases in prices of stocks, real estate, bonds and commodities which increase in price because there are more dollars in circulation which drive up their prices. 


But this is not growth. It is actually a decline in the buying power of the dollar due to excess dollars being introduced into the system. 


Declines in a Currency's Buying Power A Hidden Tax...
Stated another way, markets are not rising; currency is shrinking in buying power.  If you don't believe what you are reading,  consider the following chart:
Dow Priced in Gold
(click to enlarge)


Dow Priced In Gold Grams... In the link above, PricedinGold.com shows  the Dow Jones priced in grams of gold.   As you can see,  the DJIA has risen only slightly higher in recent years and has not come near its 1999 high. (The Dow, as of July 2018, has only risen to its 2007 level when priced in grams of Gold)

Rather, it's the currencies that have moved, and all of them downward in value and buying power.  This is a massive, but hidden tax on the wage-earner. For every dollar issued as a loan, wages buy less.


Is Inflation a Man-Made Disease?
If the currency is inflated and gradually does not represent something of intrinsic value, there is no fair exchange of labor for labor taking place. Instead, real labor is exchanged for something of no or little value. This creates an imbalance. Anything out of balance becomes ill-at-ease or dis-eased.


What Does a Dis-eased Economy Feel Like?
A diseased economy starts out feeling balanced and healthy.  Over time it starts to feel like an ill-at-ease hustle to stay ahead. There is a constant feeling of imbalance and unease. 

Individuals lose focus on the joys of life and become burdened with the preservation of their earnings.


Loss of Humanity and Growth of the Disenfranchised...

Additionally, there is a loss of humanity in every aspect of the society, as all meaningful connections are reduced to a cash connection. 

The wage earner no longer has a connection with the issuer of goods and services. He or she knows not the name or has any knowledge about the person standing behind the counter when making a purchase. 

Thus a large disenfranchised class of nameless, faceless people grows. Meanwhile, having learned how to leverage inflation, a small percentage of the population gains ownership of more and more of the assets.

Buying Power of Wage-Earners Decreases With Inflation
...
This is because making money from inflation becomes the main focus in a diseased economy. This creates a class of
Lenders and 'Flippers' prosper
from inflation
crafty investors, flippers and money-lenders, but imposes a secret tax on the working man/woman producing goods and services. Because, over time, increasing the number of dollars in the money supply lowers the buying power of each dollar.


Distortions in Vocation...
Additionally, this distortion of the currency manifests itself through loss of individual vocation. Work becomes focused on money-making/capital preservation and away from inherent talents and abilities.

All Nations Guilty...
All civilizations and all countries have played, and are now playing games with their currencies. The circumstances described here are happening all over the world.  There are a multitude of variations to debasing/inflating currencies, but the outcome is always the same. This disease is as old as civilization.  It is often touted as a means of raising the living standard of civilizations. 

And indeed it does, but only if a corresponding amount of goods and services (GDP) are produced to cover the excesses of debt created by inflating currency. If this does not happen, even as they gain materially and even turn into empires, countries infected with this disease eventually lose their soul. as the following chart shows, souls are quickly being lost.

Fiat money being created faster 
than goods and services (GDP) means 
the producing man's dollar buys less


Related Quotes:
"'If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.'"

--Victor E. Hawkinson, President, Riley County Farmers' Union, Randolph, KS,
before a subcommittee of the US Senate in 1937.

(In his testimony, Mr. Hawkinson attributes this statement to Thomas Jefferson.) .



Thomas Jefferson:
"it [sic] is not easy to estimate the obstacles which, in the beginning, we should encounter in ousting the banks from their possession of the circulation: but a steady & judicious alternation of emissions & loans, would reduce them in time."

--Thomas Jefferson in a letter to John Wayles Eppes, June 24, 1813



Adam Smith: 
"Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased..."

--Source: An Inquiry Into the Wealth of Nations,
Glasgow edition, Oxford U. Press, 1976. Chapter V


Related Articles:
The Roman Empire's Inflation
The article gives tips on what to do to fight inflation. It talks about coin clipping, one of the processes used to deflate the currency in ancient Rome.

Look Ma, I Shrunk the Dollar....
What has happened to the buying power of the dollar over the past
one-hundred years?

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