In today’s column we will explore the link between our nation’s debt and the growing inflation.
So let’s start off with a definition of the word monetary or price “Inflation”
The Dictionary’s definition is: “A general increase in prices, or a fall in purchasing power of a nation’s currency. In our case, that is the dollar.
So it means that a dollar next year will not be able to buy you the same quantity of goods and services, as it does today. An example would be that 5 years ago $10 Dollars would buy you two bags of groceries while today the same $10 Dollars would buy you one bag of groceries.
So the question then becomes, what is causing these price increases, this inflation? This loss of price stability?
Milton Freidman, a leading economist has said, “That inflation is a Monetary phenomenon” By which, he means the more money being printed (Supply of Money) competing for a limited supply of goods, causes rising prices. Former Fed Chairman, Arthur Burns, had, I think, a better definition: Government Debt causes inflation.
Both definitions, I think identify the root cause of inflation: Governments that spend more in running the Government Services (Military, Social, and Interest Payments) then they receive in Taxes and Fees, resort to printing more money, and by borrowing from others, to make up the difference.
Year after year the politicians have been unwilling, and unable, to deal with the annual deficit; the difference taken in by taxes and user fees vs the outgo to cover the costs of running the Government, plus social services, plus military spending. The difference, the annual deficit, is made up by putting it on the Government’s credit card and having the Federal Reserve (the Central Bank) print up an expanded supply of dollars.
In a simple sense, more dollars in circulation chasing a limited supply of goods and services, leads to increasing prices.