How Inflation Destroys Civilization

https://internationalman.com/articles/how-inflation-destroys-civilization/

by Nick Giambruno

It’s clear there is an unstoppable trend towards more socialism in the US.

I think inflation is the primary factor driving this trend. Americans feel squeezed because the cost of rent, medical insurance, and tuition, as well as other basic living expenses, is rising much faster than their wages.

This creates very real problems for ordinary people. In response, more and more turn to Santa Claus politicians that promise supposed freebies, like a $15 minimum wage or universal basic income.

Why the Cost of Living Has Exploded

This is all a predictable consequence of the US abandoning sound money.

By every measure—including stagnating wages and rising costs—things have been going downhill for the American middle class since the early 1970s.

August 15, 1971, to be exact. This is the date President Nixon killed the last remnants of the gold standard.

Since then, the dollar has been a pure fiat currency. This allows the Fed to print as many dollars as it pleases. And—without the discipline imposed by some form of a gold standard—it does precisely that. The US money supply has exploded 2,106% higher since 1971.

The rejection of sound money is the primary reason inflation has eaten up wage growth since the early 1970s—and the primary reason the cost of living has exploded.

The next chart illustrates this dynamic. It measures US hourly wages priced in gold grams (the number of gold grams the average person’s hourly income could buy).

Measured in gold, wages in the US have fallen over 84% since 1971. That’s an astounding drop.

The next chart measures the federal minimum wage in terms of gold grams. Priced in gold, the minimum wage has fallen 87% since 1968.

Note that the federal minimum wage was $1.60 in 1968. It’s $7.25 today, or 353% higher in dollar terms.

But that $7.25 buys 87% less than $1.60 did back in 1968. That’s the story you won’t hear from the mainstream press.

This is why millennials and millions of others are gravitating toward socialism.

They feel the economic pain of inflation every day. They know it’s becoming harder and harder to maintain a middle-class lifestyle. They just don’t understand why. So, they succumb to the siren’s call of freebies.

Perverse as it is, the policies demanded by people suffering from inflation create even more inflation.

Inflation has a way of perpetuating itself. The more inflation reduces living standards, the more people push for programs that create even more inflation. This includes things like universal basic income and a higher minimum wage… which in turn creates a cycle of inflation.

It’s only a matter of time before “fight for $15,” the rallying cry for a $15 minimum wage, becomes “fight for $20.” Then it’s “fight for $50,” “fight for $100,” and so forth.

What people should really fight for is a return to sound money. It’s the only way to end this insidious cycle. But that’s not going to happen.

Inflation follows a clear pattern of corruption:

In a fiat currency system, the government will invariably print an ever-increasing amount of currency.

This makes prices and the cost of living rise faster than wages.

The average person feels the pain but doesn’t understand what’s happening.

More people support politicians who promise freebies.

In order to pay for the “freebies,” the government prints more money.

This creates even more inflation, and the cycle repeats.

Most of America Lives Off the Government

At this point, we have to ask ourselves whether the political situation in the US will improve. Unfortunately, the data points to a troubling, but inevitable, answer… “no.”

The reason is simple: a growing majority of US voters are addicted to the heroin of government welfare.

An estimated 47% or so of Americans already receive some form of government benefit. But I don’t think that accurately reflects the situation. At least, not when you consider all the government employees, along with those in the nominally private sector who feed off the warfare state. This includes defense and other government contractors who win huge, no-bid contracts.

People involved in the military-industrial complex live off government slops as much or more than those who collect food stamps and other traditional forms of welfare. Yet they aren’t counted in the statistics. Any honest account of who depends on the government needs to include them.

When you count everyone who lives off of political dollars, we’re already well north of 50% of the US population.

In other words, the US has already crossed the Rubicon. There’s no going back.

The growing majority of people who depend on the government guarantee that socialist policies will continue and likely accelerate. It’s why Bernie Sanders and his ilk are growing in popularity.

I think this trend is unstoppable. There’s no way a meaningful number of these people would ever vote to stop their government benefits. No one voluntarily breaks his own rice bowl.

The notion that a significant number of people living off of government largesse will come around to a libertarian way of thinking is a pipe dream.

Even the Libertarian Party has become a crude parody of a real libertarian, free market, voluntaryist philosophy.

There is simply no hope for positive change from the political system. That means one thing is certain: an ever-increasing amount of money printing to pay for all these government programs.

How to Protect Your Wealth

Unfortunately, most people have no idea how bad things can get when socialist government policies spin completely out of control, let alone how to prepare.

Owning some physical gold is step one. This is something everyone should do.

Gold is the ultimate form of wealth insurance. It’s preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too.

The price of gold tends to be inversely related to the value of the dollar.

I expect gold to soar in the years ahead as the political inflation cycle plays out.

In addition to physical gold, you’ll also want leveraged upside to grow your wealth. For that, I suggest looking to companies that produce precious metals.

Editor’s Note: Whether it’s groceries, medical care, tuition, or rent, it seems the cost of everything is rising.

It’s an established trend in motion that is accelerating, and now approaching a breaking point.

At the same time, the world is facing a severe crisis on multiple fronts.

It’s created an economic situation unlike we’ve ever seen before, and it’s all building up to a severe crisis on multiple fronts.

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Inflation: The fraud at the heart of our economy that is destroying the middle class

https://www.independent.co.uk/voices/comment/inflation-the-fraud-at-the-heart-of-our-economy-that-is-destroying-the-middle-class-9171059.html

Wages have not kept up with the 67-fold increase in money supply

Dominic Frisby
Wednesday 5 March 2014 15:27

There is a fraud at the heart of our economy.

It is fraud that our leaders have chosen to ignore, if not actually perpetrate. It is a fraud that causes the wealth gap to widen. And it is a fraud that is destroying the middle class.

That fraud is inflation.

Inflation once meant 'an increase in the supply of money leading to higher prices'. Deflation meant the opposite – 'a decrease in the supply of money leading to lower prices'.

These meanings have, however, been distorted over time, so that inflation is now 'rising prices' and deflation 'falling prices'. It may not seem important - meanings of words change all the time - but it is.

The official method of measuring inflation is the Consumer Price Index (CPI). The Retail Price Index (RPI) was once used and is often still referred to. Both track the prices of things we commonly use – food, clothing, transport, energy and so on.

From 1989 to now CPI has averaged just 2.8 per cent growth per year. But the amount of money circulating in the UK has grown at an average annual rate of 11.5 per cent over the same period.

Money supply has also grown faster than the economy. In 1971 there were 31 billion pounds in circulation. Now there are just under £2,100 billion (£2.1 trillion). That is a 67-fold increase.

Are we 67 times richer? Some people are. But most of us aren't.

Research by Positive Money shows that only about 10 per cent of newly-created money has gone into the kind of consumer goods tracked by CPI. So all CPI does is measure the effects of about 10 per cent of money creation.

Positive Money's research shows that 13 per cent of newly-created money has gone into real businesses that create jobs and boost economic growth; 37 per cent into financial markets and 40 per cent into residential and commercial property.

Is it any wonder the financial sector has grown so disproportionately large and powerful, or that the British are so obsessed with houses? That's where the money's gone.

The Bank of England's trusted tool to deal with inflation is to raise interest rates. The effect of higher rates is that money costs more to borrow and people borrow less. So the cost of assets that people use borrowed money to buy - houses especially - tends to fall.

But the last thing government wants is falling house prices. Falling house prices between 1989 and 1994 made the Tories unelectable for half a generation. Never mind the fact that young people cannot afford to buy a home, we'll give them Help-To-Buy instead. Policy-makers will not raise rates unless their hand is forced. So how handy is it to have an official measure that 'proves' that inflation is low? Especially one that ignores 77 per cent of new money-supply.

Even with the suspicious measure that is CPI, for five years between 2008 and 2013 official inflation was 3 per cent. The Bank of England has a mandate to keep inflation at 2 per cent. Yet still it did nothing. Rates remained at the unprecedented low level of 0.5 per cent.

If you owned the assets or if you operated in the sectors that have benefited from all this newly created money - the financial sector and the London property in which it mostly lives - you’ve made spectacular gains. But what if you didn’t?

You got left behind.

And the wealth gap just got bigger.

Wages have not kept up with the 67-fold increase in money supply. They've gone from about £2,000 in 1971 to around £25,000 today. Many families now find themselves having to work longer hours, with both spouses in the workplace, taking on larger debts and having fewer children just to maintain an ordinary middle class lifestyle. Many of their children face unprecedented levels of debt and, in many parts of the country, will never be able to buy a house.

What is happening is an insidious transfer of wealth from those that don’t own the right assets or operate in the right sectors to those that do. This process will not stop until we start measuring inflation accurately and, yes, honestly.

Low interest rates penalise labour and reward capital and assets. That is the simple mantra to remember.

Wouldn't it be nice to have money that buys you more each year instead of less?

The Bank of England is an unelected body that wields tremendous power. For all the talk of its independence, its head is appointed by the Chancellor and is answerable to him. Serious questions need to be asked about what it gets up to with its and our money.