I've written many times before about inflation. It's a growing problem, and it's getting worse more rapidly than ever. I've been watching our local prices for a long time, and I'd say they've increased faster over the past three months than I've ever seen happen before.
The reason, in this case, is fairly obvious. It's not that products and services are worth more, and therefore getting more expensive - it's that the currency we use to buy them is worth less, because it's becoming depreciated. It's a simple equation. If you have 100 dollars in circulation, and an egg costs a dollar, that's what you pay. If you suddenly double the number of dollars in circulation, those extra dollars are chasing the same number of items for sale - so prices will rise, to accommodate the new "value" (or, rather, lowered value) of the currency. An egg will now cost $2. In a microcosm, that's what causes most inflation. Oh, sure, scarcities will also drive up prices, but that's a localized and temporary thing. We're talking about sustained increases across the board, everywhere.
This isn't an accident. It's actually deliberate Federal Reserve policy. As Wolf Richter points out:
The “Purchasing Power of the Consumer Dollar” – part of the Bureau of Labor Statistics’ Consumer Price Index data released today – is the politically incorrect mirror image of inflation in consumer prices, as measured by the Consumer Price Index (CPI). By wanting to increase consumer price inflation, the Fed in effect wants to decrease the purchasing power of the consumer dollar, to where consumers have to pay more for the same thing. Thereby it wants to decrease the purchasing power of labor paid in those dollars.
And that purchasing power of the dollar in January dropped by 1.5% year-over-year to another record low.
There's more at the link.
The US government, over the past year, printed or electronically created over 40% of all the dollars that have ever existed. Click the image below (provided by the Federal Reserve Bank of St. Louis) to be taken to a larger version at the Fed's Web site (which will update on a regular basis).
That's an enormous growth in the US money supply, and not one cent of it has been backed by economic growth or hard assets. It's all been conjured up out of thin air.
The only reason inflation hasn't jumped even further is that much of those funds haven't been widely circulated. They've been funneled to banks and institutions that have used them to shore up their own bottom line, and to taxpayers who've used them to substitute for the wages and salaries they would have earned but for the COVID-19-induced economic shutdown. However, more and more of those funds are now circulating.
That's not all. Senator Elizabeth Warren has introduced a bill to partially forgive study loans (at an estimated cost to the taxpayer of $650 billion). The Biden administration is talking about ongoing subsidies for poor families and children (estimated to cost well into the trillions every year, according to some estimates), and increased social and entitlement programs. Where will the money come from to pay for all these things? Why, from the same source as the 40% increase in money supply over the past year. The Fed will simply generate the money out of thin air.
Our political leaders are economic illiterates. They have no idea of the likely consequences of their policies. The cause of inflation is well known. It's been known for generations. We have the example of Weimar Germany, Zimbabwe and many other nations to show us what happens when you print money without restriction. I fear greatly that it's coming our way as well.
Over the next few weeks I'll publish more articles about our likely inflation prospects. I hope they'll help all of us to take stock of our current situation and prepare as best we can. It's probably going to be a very, very hard ride.