INFLATION
Inflation describes an economy in which prices of goods and services tends to go up, resulting in the purchasing power of the dollars you hold to go down. (A better term might be dollar deflation which accurately describes the circumstance when the value of your dollars are shrinking.)
We see the insidious effects of inflation every day in the market or at the gas pump at our local station. Why is gasoline so high? Why is that loaf of bread, dozen eggs or cut of beef almost two times what they were the last time I purchased them? Costs continue to rise almost daily. The rising costs limit our choices, frustrate and anger us. We cannot buy the special brands or quality “stuff” we once did. We feel cheated. We have to make compromise purchases that do not satisfy. We question the functioning of government that permits this problem. Why does it occur?
LAW OF SUPPLY AND DEMAND
The law of supply and demand states that when supply of goods or services is greater than demand, prices fall, and when demand of goods or services outstrips supply, prices rise.
INFLATION DEFINED
The term “inflation” which means: “to fill a bladder with air or other gas” was first used in 1838 to describe monetary inflation, an economy in which the general trend is one of increased prices of goods and services . The name was coined in 1837-1848 during the US economic crisis of that period.
Monetary inflation is caused by government. Government and only government is responsible for providing its citizens with a stable-valued paper money supply. By printing up more paper money and dumping “dollars” into the economy faster than industry and business can produce goods and services, government can cause money to be less valuable than the goods and services it is chasing. In other words inflation most often occurs when government increases the supply of money while the demand for goods or services remains constant or falls. The end result of this government policy is cheap money and costly products and services. We call this economic phenomenon “inflation”, the “inflating or blowing up” of prices of all goods and services, or conversely the deflation of money, i.e. the reduction in “value” of the government-issued money we hold.
As noted above, inflation may also be caused by scarcity of goods and services. Scarcity of products may result of an imbalance in which results in more money in circulation relative to the goods and services available to purchasers. (Rf the Law of Supply and Demand). Again government may be responsible for this phenomenon by as a result of its misuse of its regulatory and legislative functions. In a most recent and egregious 2021 example of government policy, arbitrary government regulations designed to promote a “Green Agenda” intentionally reduced the supply of fuel oil, gasoline, and natural gas by government regulation. The immediate result was that the cost of these now scarce products rose dramatically. Sadly this was the result of a foolish doctrinaire government policy which put a theoretical and political agenda ahead of sound economic protocols. Since the price of these products—gas and oil— was and remains universally embedded in almost every aspect of a modern economy-the effects of its cost increases were immediate and devastating. Prices of fuel ballooned, causing a massive, generalized price increases for goods and services nationally. Government unwise policy created inflation!
Furthermore, this government policy was imposed at the worst possible time—when the world was just emerging from a devastating pandemic which had caused interruptions in a global supply chain.
Shortages and unavailable products generated scarcity and rising prices. The result of these shortages was massive inflation—lots of money chasing scarce goods—caused prices to rise by 9% or more in a very short time. This 9% rate of inflation was the highest recorded in almost forty years, or since the 1979-1980 period when inflation hit 12%. (In one example of shortages generating infaltion: in the UK, only a few companies made cardboard egg cartons, needed to package eggs for market. The pandemic disease outbreak at one of these producers cut UK production of egg cartons to 50% of what was its normal supply. UK farmers were producing eggs, but they could not be sold without cartons. Huge price rise in eggs resulted.)
INFLATION ACCUMULATES
Inflation has cost you (purchasers) 9% of your buying power in 2021, then 6% of your buying power in 2022, then 4% of your buying power in 2023—or totally by about @ 19% of your buying power year over year so far! If you had a savings account in 2020 of $1,000 dollars by 2023 its buying power shrunk to $810 dollars. Inflation rate has fallen from its 9% peak, but its insidious effect continues to eat away at your salary and saving year after year. This year (2024) we suffer from more than 3.4% inflation so far. Inflation accumulates annually…its rate may go down and up..it but its terrible effects do not go away as it keeps gnawing away at your salary and your savings.
If you were fortunate enough to get a raise of 3% in 2023, your salary of $1000 per week rose to $1,030.00. But remember that previous inflation had cut your buying power to $810. After your “raise” you now are earning a nominal $1030. Don’t think you gained anything. Your new income has increased your buying power over 2020 (810+30=840) to only $840*. Thus you earnings are $160 dollars less in buying power than you had in 2020. Do you now understand what “inflation is insidious” means? (*Note that I am not counting the 3.4% inflation we experienced in 2024.)
Today, as a result of accumulated inflation, inflation is 20% and in effect the US dollar has been deflated to @ 20% of what it could purchase in 2019. That is because all prices we encounter in the US are inflated —as a result of US government regulations and unwise policy. Today, our dollar buys almost 20% less than what it did pre-2020. If you scrimped and saved away one thousand dollars in your kitchen cookie jar in 2020, today that same rubber-band-tied-roll of bills is worth only $800. If your salary was $1000 per week in 2020–today that same salary will buy you only $800 dollars worth of goods and services. Because of inflation you are poorer by about 20%. That person with a $1,000 per week income has lost 200 dollars a month in purchasing power or $200 X12 months= $2,400 dollars annually.
BIDENFLATION
When President Joe Biden was elected in 2020 annual inflation rate was less than 2% (or actually about 1.5%). That meant that the dollars you held in 2020 would lose only a little less than 2 dollars worth of buying power for each $100 dollar bill you held. But as a result of the Biden “Green Agenda”, the administrations free-for-all borrowing and spending policies (which added billions of borrowed and printed dollars into the economy) as well as post pandemic supply chain problems, our accumulated inflation burden today is ten times what it was prior to Biden entering office—or a devaluation of purcahing power equivalent to about $20 dollars per each $100 dollars you hold. As a result that $100 dollar Benjamin you saved in 2019 is today is worth only $80 dollars! That change in value should wipe the smirk off of Old Ben’s greenish-gray printed face.
Government is responsible for inflation. Free wheeling spending, carefree dumping dollars into the economy cheapens the dollars citizens hold. Government “give-aways” —like government subsidies, or government subsidies to generate lower prices for some goods, or loan forgiveness for particular groups, all add to the burden of paper dollars circulating in the economy which compete with the dollars you earn or save with such difficulty. Some few of us may gain a small advantage in their personal economy—like students with forgiven loans, or seniors with slightly cheaper medicines, but, overall inflation bites back by imposing the harsh burden of higher prices for all necessities like food, fuel, gasoline and essential services that overwhelm the small savings government largess has offered.
Policies which dump dollars into the economy cause inflation. Policies which create scarcity of essential goods like home heating fuel and gasoline cause massive inflation. Inflation hurts everyone, but it hurts the working class and poor the most.
No comments:
Post a Comment