Wednesday, December 14, 2011

Politicians’ addiction to spending, the value of the dollar, and ongoing inflation

Politicians have clearly seen opportunity after opportunity to buy, not only goods and services for the government, but votes for re-election and big bucks for their campaign coffers, without raising visible taxes.


They accomplish this feat through deficit spending augmented by a Federal Reserve System (FRS) willing to print U.S. dollars that have no specie metals backing them up. The Congress authorizes the FRS to print more money to cover their expenditures while the politicians avoid that whole nasty business of increasing taxes.

These actions by Washington politicians (and in Europe, too) are motivated by their audacity in believing one of two—or, perhaps, both—lies:

  1. The government is capable of getting something for nothing.
  2. The taxpayers are not smart enough to figure out what the politicians are doing to them, or the taxpayers are too involved in their own daily affairs to care.

Of course, if you and I were to print worthless currencies, we would be arrested and thrown in prison for a crime called “counterfeiting.” However, the politicians in Washington, D.C.—especially the radical leftists among them—call their authorizing the production of more and more increasingly worthless currency “a progressive monetary policy.”

What needs to be understood about this matter is this: Whether a private citizen produces currency back by no sound money (specie metals) or the government does it, the result (ultimately) is the same: monetary inflation.

It’s not the “wage-price spiral”

When prices rise—and continue to rise—one frequently hears statements like, “the unions are driving prices up.” Or, some others might say, “No. Management is driving prices up in search for higher profits.” But both of these arguments are wrong, in the final analysis.

Without the collaboration of the Federal Reserve and its printing of unbacked currency, neither labor nor management would be able to force prices upward. Labor would soon price itself out of the market, or management would drive prices to the level that business would soon shift to a competitive products, or competitors offering similar products at lower prices.

No. In the absence of monetary inflation, the so-called wage-price spiral would not be sustainable. So, if you’re looking for someone to blame for higher prices, look no further than the government and the governments’ (almost all national governments engage in the practice) willingness to spend too much while printing currency to cover all or part of their ongoing spending spree.

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