Myths about inflation.ITEM: The New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of Times for November 4, 2005, reported: "While the Fed chief sounded optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the economy's prospects, Greenspan, who leaves early next year after 18 years, made clear that the Fed is keeping a close eye on high energy prices to make sure they don't spark broader inflation." ITEM: The Times of London reported on October 28: "More interest rate increases will probably be needed from the Federal Reserve to head off inflationary pressures in America, the OECD OECD: see Organization for Economic Cooperation and Development. [Organization for Economic Cooperation and Development Organization for Economic Cooperation and Development (OECD), international organization that came into being in 1961. It superseded the Organization for European Economic Cooperation, which had been founded in 1948 to coordinate the Marshall Plan for European ] said yesterday in a report.... With little slack left in the US economy, inflation could 'continue to pick up,' particularly if energy prices keep rising." ITEM: On ABC's Good Morning, America on October 16, reporter Geoff Morrell remarked that "soaring gas prices drove inflation to its highest monthly rate in 25 years." CORRECTION: There are two major underlying errors at play here: first, the Fed doesn't cure inflation, it creates it; and, second, the commonly used definition of inflation is incorrect--confusing cause with effect. Higher prices are not inflation, but they may well be a result of inflation--which, properly defined, is an increase in the supply of money and credit. The confusion, though widespread, is happily propagated by the government and those who benefit from cheapened money. The late Ludwig von Mises Ludwig Heinrich Edler von Mises (September 29, 1881 – October 10, 1973) (pronounced [ˈluːtvɪç fɔn ˈmiːzəs] was a notable economist and a major influence on the modern libertarian movement. , the renowned scholar identified with the Austrian School of economics Austrian school of economics Body of economic theory developed by several late 19th-century Austrian economists. Carl Menger (1840–1921) published a paper on their new theory of value in 1871. , often observed that the government is content to blame inflation on business, as has been the case most recently when prices rose in the energy sector. This is like a pickpocket PICKPOCKET. A thief; one who in a crowd or. in other places, steals from the pockets or person of another without putting him in fear. This is generally punished as simple larceny. yelling yell v. yelled, yell·ing, yells v.intr. To cry out loudly, as in pain, fright, surprise, or enthusiasm. v.tr. To utter or express with a loud cry. See Synonyms at shout. n. "catch the thief!" to disguise the fact that he actually lifted your wallet. "The government, which produced the inflation by multiplying the supply of money, incriminates the manufacturers and merchants and glories in the role of being a champion of low prices." Economist Henry Hazlitt Henry Hazlitt (November 28, 1894 – July 8, 1993) was a libertarian philosopher, economist,[1] and journalist for The Wall Street Journal, The New York Times, Newsweek, and The American Mercury, among other publications. was on the money with his straightforward explanation: "Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore, inflation--if we misuse the term to mean the rising prices themselves--is caused solely by printing more money. For this the government's monetary policies are entirely responsible." Just because the game is an old one doesn't make it less effective. Every single day the mass media misuse the proper meaning of inflation until the general public now believes a rise in prices (a result of inflation) is inflation itself. Mises saw it happening in 1951, saying: Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term "inflation" to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation.... As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation. Said inflation continually reduces the value of money. In this country, for example, the dollar lost about three-fourths of its value between 1965 to 1985; between 1985 and 2005, it lost a bit over one-third of its value. This was not a mistake. It was policy. As Richard Rahn, director general of the Center for Global Economic Growth, has pointed out, the government normally produces "too much money, which causes inflation, because the government--as opposed to the people--has a vested interest Vested Interest A financial or personal stake one entity has in an asset, security, or transaction. Notes: For example, if you have a mortgage, your bank has a vested interest on the sale of your house. See also: Right in inflation. Under a progressive tax rate system, inflation results in unlegislated tax increases, by pushing people into higher tax brackets Tax Bracket The rate at which an individual is taxed due to a particular income level. Notes: Each income class is taxed at a different level. Generally, the more you make the more you are taxed. without any rise in real earnings and also erodes the government debt at the expense of the bond holders." Rahn also recalls that before the Fed's creation in 1913, there was no persistent inflation (other than during the Civil War), noting that the "overall price level in those 124 years did not change much." So when one hears that Alan Greenspan Alan Greenspan Dr. Greenspan is Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. or his successor is fighting inflation by changing the federal funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. , keep in mind that what is really happening is the creation of more inflation. Dr. Frank Shostak, an adjunct scholar at the Mises Institute, reports that between January of 2001 and June of 2004, the Federal Reserve pursued "an aggressive lowering of the federal funds rate target. The target was lowered from 6.5% to 1% by June 2003. To attain a given federal funds rate target, the Fed must constantly manage the flow of money to financial markets. Changes in the Federal Reserve's balance sheet, also known as Federal Credit, depict the variability in the monetary pumping to sustain a given federal funds rate target. Thus, to support a lower fed-funds rate target the yearly rate of growth of Fed Credit jumped from 0.7% in January 2001 to 12% by September 2001." Continues Shostak: "By responding to the symptoms of inflation that the Fed has itself created, the U.S. central bank gives the impression that it fights inflation. Once it is realized that inflation is increases in the money supply, it becomes obvious that the source of inflation is the Fed and fractional reserve banking. It also becomes obvious that rather than fighting inflation, it is the Fed itself that generates the inflationary process." In short, the Fed ignites inflation by increasing the supply of money and credit, stoking the flames by manipulating bank reserves Bank reserves are banks' holdings of deposits in accounts with their central bank (for instance the European Central Bank or the Federal Reserve, in the later case called federal funds), plus currency that is physically held in bank vaults (vault cash). , then shows up with sirens Sirens with song, bird-women lure sailors to death. [Gk. Myth.: Odyssey] See : Enchantment sirens their singing so sweet, it lured sailors to their death. [Gk. Myth.: Hamilton, 48] See : Singer blaring and saying it has arrived to put out the blaze. The media meanwhile pass out figurative fig·u·ra·tive adj. 1. a. Based on or making use of figures of speech; metaphorical: figurative language. b. Containing many figures of speech; ornate. 2. gasoline to toss on the fire by cheering for the arsonists to do more of the same. |
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