This is how inflation works: some persons get more purchasing power; some others get less. An examination of today’s wealth disparity growth in America makes clear that those who get more are the already wealthy. Those who get less are not.
Social Security beneficiaries are an example of how this works. The cost of living they received for 2021 rose 1.3 percent. But according to the Consumer Price Index, prices in the first quarter of this year are rising at a 7.5 percent annual rate. The adjustment retirees received this year are for an inflation rate that is already behind us. They may get an increase next year, but they are paying higher prices today.
As long as the Federal Reserve has been in existence it has served the needs of the banking cartel that created it in the first place. The banking cartel is among the government and central bank cronies that get the newly created money first.
Economists call this the Cantillon Effect. Almost 300 years ago economist Richard Cantillon noted that the standard of living of the early recipients of newly created money rises. But it is at the cost of a lower standard of living for others.
Therefore, there are always proponents of inflation and of deficit-financed government.
But seniors and retirees are not the only ones swindled by inflation. Anyone who holds US dollars, an asset that is depreciated by design, is victimized.
The great economist Ludwig von Mises explains what happens when the government inflates to engage in policy X, Y, or Z:
“…people to whom the money comes first now have a higher income, and they can still buy many commodities and services at prices which correspond to the previous state of the market, to the condition that existed on the eve of inflation. Therefore, they are in a very favorable position. And thus, inflation continues step by step, from one group of the population to another. And all those to whom the additional money comes at the early state of inflation are benefited because they are buying some things at prices still corresponding to the previous stage of the exchange ratio between money and commodities.
“But there are other groups in the population to whom this additional money comes much, much later. These people are in an unfavorable position. Before the additional money comes to them, they are forced to pay higher prices than they paid before for some — or for practically all — of the commodities they wanted to purchase, while their income has remained the same, or has not increased proportionately with prices…
“The government does not care, at first, that some people will be losers, it does not care that prices will go up. The legislators say, ‘This is a wonderful system!’ But this wonderful system has one fundamental weakness: it cannot last. If inflation could go on forever, there would be no point in telling governments they should not inflate. But the certain fact about inflation is that, sooner or later, it must come to an end. It is a policy that cannot last.”
As long as there is a central bank that has the power to inflate the money supply, the currency will be corrupted. Although its effects are only just coming into view, the expansion of the US money supply has reached epic proportions.
We believe that those who do not protect their wealth now with gold and silver (which, we find ourselves saying often, the authorities cannot print) will suffer grievous losses.
Mises is right: “In the long run, inflation comes to an end with the breakdown of the currency.”