What is Inflation? 

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This rise in price alone does not entirely define inflation. To quantify inflation, there must also be a decrease in the value of currency. In other words, money does not buy as many goods and services as it used to; generally defined as an erosion of purchasing power.

Table of Contents

Cuurent inflation rate June 2024.

In May 2024, the U.S. experienced a 3.3% increase in prices compared to May 2023, as measured by the Consumer Price Index (CPI) for goods and services in U.S. cities. This reflects the inflation rate, a key economic indicator showing the change in price levels over time. The recent inflation follows a severe period in 2022, influenced by COVID-19, supply chain issues, and the Russian invasion of Ukraine.

Historically, the U.S. annual inflation rate rose from 3.2% in 2011 to 8.3% in 2022, reducing the dollar’s purchasing power. The International Monetary Fund projects the U.S. CPI to grow from 258.84 in 2020 to 325.6 by 2027, using 1982-1984 as the base period. The monthly CPI change for urban consumers was 0.1% in March 2023 compared to February 2023. In 2022, many countries faced high inflation rates, with Brazil at 8.3% in 2021 and China at 0.85%

Food

  • Monthly Changes (May):
  • Overall food index increased by 0.1%.
  • Food at home index was unchanged.
    • Decreases:
    • Dairy and related products: -0.5% (milk: -1.3%).
    • Nonalcoholic beverages: -0.3%.
    • Unchanged:
    • Other food at home.
    • Fruits and vegetables.
    • Increases:
    • Meats, poultry, fish, and eggs: +0.2% (following -0.7% in April).
    • Cereals and bakery products: +0.2%.
  • Food away from home index increased by 0.4% (after +0.3% in the previous two months).
    • Full service meals: +0.4%.
    • Limited service meals: +0.2%.
  • Annual Changes:
    • Food at home: +1.0%.
      • Meats, poultry, fish, and eggs: +2.4%.
      • Nonalcoholic beverages: +1.3%.
      • Fruits and vegetables: +0.6%.
      • Cereals and bakery products: +0.7%.
      • Dairy and related products: -1.0%.
    • Food away from home: +4.0%.
      • Limited service meals: +4.5%.
      • Full service meals: +3.5%.

Energy

  • Monthly Changes (May):
    • Energy index: -2.0% (after +1.1% in April).
      • Gasoline: -3.6% (unadjusted: -0.5%).
      • Natural gas: -0.8%.
      • Fuel oil: -0.4%.
      • Electricity: unchanged.
  • Annual Changes:
    • Energy index: +3.7%.
      • Gasoline: +2.2%.
      • Electricity: +5.9%.
      • Natural gas: +0.2%.
      • Fuel oil: +3.6%.

All Items Less Food and Energy

  • Monthly Changes (May):
  • Overall index: +0.2%.
    • Shelter: +0.4% (largest contributor).
    • Rent: +0.4%.
    • Owners’ equivalent rent: +0.4%.
    • Lodging away from home: -0.1%.
    • Medical care: +0.5% (prescription drugs: +2.1%, hospital services: +0.5%).
    • Used cars and trucks: +0.6% (after -1.4% in April).
    • Education: +0.4%.
    • Decreases in airline fares (-3.6%), new vehicles (-0.5%), communication (-0.3%), and recreation (-0.2%).
  • Annual Changes:
  • Overall index: +3.4%.
    • Shelter: +5.4% (accounting for over two-thirds of the increase).
    • Motor vehicle insurance: +20.3%.
    • Medical care: +3.1%.
    • Recreation: +1.3%.
    • Personal care: +2.9%.

The base measure of inflation, in economic terms, is the annual percentage change in the Consumer Price Index over time. The Consumer Price Index is a statistically calculated measure of the cost of goods household consumers normally purchase on a regular basis. It’s no secret that inflation eats away at your savings. It’s an infamously invisible financial force that makes your money less powerful, and increases prices. It’s why a dollar can only buy 5% as much as it could back in 1913

Inflation is Starting: Food and Fuel Up 20-40%.

This is depressing, but it’s happening and we should be aware of it. Food and energy prices are skyrocketing. Some essential commodities — like iron — are up 100% this year. This is bad news for any “recovery” that’s supposed to happen. Inflation is one of the biggest problems for people who want to save money — it forces them to put their money into the financial system, because storing cash will lose money over time. The higher inflation is, the more it wreaks havoc on people who are trying to save money in order to better their lives.

Here’s a quick 6-part introduction to inflation. You’ll learn what it is, what causes it, why the government likes it, and how it hurts regular people.

  • What is Inflation? A quick glimpse into common definitions for what inflation is, and how to tell if inflation is happening, or if prices for something are increasing for other reasons.
  • What Causes Inflation? Understanding what causes inflation is a good way to learn how to be prepared for it in the future. If you know what causes it, then you’ll know before others when to expect it to hit, meaning you can be better prepared.
  • Why Does the Government Keep Creating Inflation? The government is a huge fan of inflation for a lot of reasons that should make your stomach churn. Hint: it’s unethical, back-stabbing, and done secretly.
  • What is the Real Inflation Rate? Is inflation at just one rate at one time, or can it be different depending on the region, and market? Read this article to learn.
  • Can Inflation and Deflation Happen at Once? The answer is: “yes.” Inflation and deflation almost always hit together. Right now, some prices are skyrocketing while others are free-falling. Learn which prices are going up and which are going down in this guide.
  • How Inflation Makes Saving Money Almost Pointless. Inflation creates a debt-based economy, destroys savings, and makes retirement next-to-impossible. Learn how this works in this guide.
  • What does recession mean for middle class?. Inflation is essentially political warfare against savers and investors. It makes it difficult to make it to the middle class. Inflation makes it difficult to leave poverty. Inflation is financially deadly.
  • Why inflation is too high? – causes and consequences. A basic understanding of economics reveals to us that we can know for certain that inflation is going to hit us. Prices are going to start going up across the board. This article is a quick explanation for why we can know that.

Understanding inflation is the first step to preparing for it, and even profiting from it. Learn how to hedge against inflation, profit from it, and protect your savings from being eaten away. Just read the articles in the series below, and you’ll be good to go. The article series is still a work in progress, so make sure to subscribe to get the newest articles that will be added.

Prepare for Inflation/Deflation.

So, you know what inflation is. You know why it’s created. And you know it’s already starting to hit. So, what can you do? You can prepare by researching the following ways to hedge against inflation, such as with gold:

  • Why is gold a hedge against inflation. Precious metals have long been seen as the best way to prepare for inflation. Gold’s supply is limited, and it historically has been the best move for preparing for inflation. I give the entire case in this guide.
  • The coming great inflation and the gold price. Gold performed better the worse that the recession got. There is some historical precedent for this, but the special circumstances of the Great Recession actually added opportunity for many investors.
  • Income Investing as Anti-Inflation Strategy. One of the best methods of combating inflation is through income investing. By investing in income-earning assets you are given access to more capital in order to maneuver the inflation/deflation onslaught.
  • “Real” Investments Are an Inflation Hedge. The more your investments stay on “paper”, the more likely you are to be hit by inflation. This seems naive at first, but makes sense after careful analysis.
  • TIPS are a Bad Inflation Hedge. Treasury Inflation-Protected Securities are horrible investments. Just read this article and you should be convinced to put your investments somewhere else that makes sense. The government isn’t to be trusted when it comes to inflation — they support inflation, after all.
  • Should You Go Into Debt Because of Inflation? Inflation makes debt much cheaper than it originally seems. Does this mean you should go into debt? Not quite, and here’s why.

By mastering your plan to defeat inflation, you can actually increase your income, and profit while others are being hit with the realization that they’re money isn’t buying as much as it once did.

Feel free to bookmark this page if you don’t have time to read it all, or send a link to this page to your friends in order to make sure they’re prepared for inflation as well.

What causes inflation to occur in the first place?

Simply defined, inflation is an increase in the money supply. Money is no different from other commodities that are also governed by the laws of supply and demand. When there is more money chasing the same amount of goods and services, there is inflation. This causes the price of the goods and services to rise.

It is not uncommon to confuse cause and effect when it comes to inflation. Often when there is a noticeable increase in prices, inflation is blamed, but this may not be correct as there can be other explanations for rising costs. The causes of inflation can be lumped into two general causes: it’s caused by higher demand for good/services leading to higher prices — or alternatively, it’s caused by the government is printing too much money, meaning the money can buy less. In the end, inflation is all about supply and demand.

1) Inflation and Rising Prices Cause and Effect.

To authentic the relationship between prices and inflation, the definition of price is essential. Price is a free-market mechanism to affirm the information about the scarcity of any given commodity or service. Prices fluctuate sometimes on a daily basis. In general, if supply is up and demand is down for something it will be reflected by having a lower price. The opposite would be revealed by a higher price.

There are other determinants for rising prices, and the most critical one is the increase in the supply of money, or inflation. The same attributes apply to money as they do to a commodity or service. A higher supply of circulated money, usually issued by a central bank will cause inflation, and the resulting effect is rising prices. Usually during a time of inflation, prices first rise and are then followed by wages. This sometimes causes a misinterpretation of cause and effect. The cause of inflation is the growth of the money supply, and the effect is the rising prices. When this occurs slowly, supply and demand is not affected in any great significance, but the rapid escalation of fiat currency can grind an economy to a halt, as both buyers and suppliers are hesitant in taking decisions regarding transactions and are unsure what prices should be applied.

During an unusually high inflationary period, buyers may over purchase in fear of future rising prices for the same goods or services. This often causes an anomaly in the supply of inventory that often results in recessions or worse.

2) Monetary Policy and Inflation.

The monetary policies of nations determine the value of their respective currencies. Because money is no longer tied to gold, nations must float their currencies against each other to determine their value. An accelerating supply of a fiat legal tender in regards to its GDP undermines its value and stability. The more paper money that is circulated, the fewer goods and services, may be purchased for the same nominal amounts.

It is necessary to understand that often the effects of printing money are not the same as the intended consequences. Central banks and governments frequently attempt artificially to jolt a slumping economy by injecting it with newly printed cash.

If the economy reacts, and subsequently grows, they try to retrieve much of that cash to remove it from the economy. This is rarely successful and causes the money supply to grow as it is difficult to get it back once it is out in circulation. The effects of economics are always systemic and rarely respond to the intentions of artificial stimulations.

Although it is common to refer to inflation as the printing of money, the literal growth of the money supply occurs more subtly. In America, the Federal Reserve Bank, America’s central bank uses a method called open market operations.

The Federal Reserve control inflation by open markets operations.

This occurs when they buy bonds on the open market, which transfers money from the vaults of the Federal Reserve into the commercial banks which in turn lend it out. This is only a virtual representation as no physical money exists in a real vault. They do this by creating accounts and crediting them with whatever amount they determine.

The Federal Reserve control inflation by influencing interest rates.

In addition to open market operations, some central banks set the interest rates artificially low, which allow businesses to borrow money below market rates, which then accelerates the velocity of the newly circulated money.

When they decide to take the back from the economy, they sell bonds back into the economy and then place the money in the Federal Reserve Bank so that it cannot circulate. This is a tenuous process, and there is much leakage, and the effects of this perpetual practice have taken a toll on the American dollar of which all other currencies are compared.

There are some schools of thought that believe excess printing of money can lead to inflation. Monetarists believe the single most important factor causing inflation is the rapid decrease or increase of money. They follow the quantity theory of money, which states any change in the amount of money available will affect the price of goods and services.

The alternate school of thought regarding inflation is the quantity of money is only a small factor in relation to inflation. Keynesian economists believe there are several causes, or an aggregate group of causes, that lead to inflation. There are three basic models of inflation set forth by Keynesian economists; demand-pull, cost-push and built-in inflation.

  • Demand-pull inflation is caused by an increase in demand due to increased government and private spending; this type of inflation is generally beneficial to the overall economy.
  • Cost-push inflation is generally a result of natural disasters or increase pricing of component supplies for manufacturing, usually significant, drop is aggregate supplies.
  • Built-in inflation is generally a result of workers trying to maintain wages in excess of costs, with businesses passing along higher wage costs to consumers of end products and services.

How Inflation Hurts Us (especially the poor).

Unpredictable inflation rates can adversely affect the overall economy of a country through uncertainty in the future economic health of the country and a reduction in the ability to save and invest money.

Along with causing consumer monetary difficulties, unpredictable inflation rates can cause businesses to avoid budgeting or long-term investing. Many businesses, in times of high inflation rates, may be required to transfer resources away from production and manufacturing to focus on profits and cover losses.

Another extremely negative effect of inflation is the potential for what is known as a wage spiral. This is a serious of events during which workers demand an increase in pay to keep up with inflation, which in turn causes the cost of goods to increase. The cost increase for goods leads to another demand for wage increases. And so, the cycle can continue into a state of hyperinflation.

One additional effect of inflation is the desirability to maintain high balances in high-yield, or high interest, bank accounts. Even with the largest majority of a business’ cash assets in a high interest bank account, cash is still necessary to complete transactions for purchases and costs of goods sold. This may cause a need to continually withdraw money from the bank and can lead to high penalty and transaction charges.

How inflation makes saving pointless.

One of the most dangerous lies in all of finance and economics is the implied myth that inflation somehow “destroys” wealth. It doesn’t. Inflation doesn’t hurt everyone equally — inflation helps some and hurts others. Inflation is actually one of the biggest reasons large corporations are so powerful in society. The government and big banks use inflation to force people to spend their money and go into as much debt as they can afford.

But how does it all work? Before we answer that, let’s first look at a parable. Some things are best learned in a story format, and inflation is one of those.

Inflation Destroys Debt and Dollars.

Inflation doesn’t destroy wealth — inflation destroys dollars. This means if you’re in debt, inflation makes your debt less and less. If inflation is 10%, it’s like your debt is getting 10% smaller every year. If you’re a saver, inflation makes your savings 10% smaller every year.

Every year people in debt see their net worth increase because of inflation. Every year people who are savers see their net worth decrease because of inflation. Inflation doesn’t hurt everyone equally — it just hurts people with cash, and forces them to spend their money and get into debt. Inflation essentially forces people to become slaves to banks and to not have money.

In an inflationary society, people who are willing to go into debt to buy houses, businesses and such are at a huge, huge advantage over people who just save their money. Savers are penalized. Spenders are rewarded.

What This Really Means.

Because inflation makes debt more attractive, an economy with inflation will see a much higher level of debt than societies with less inflation. This leads to the economy becoming much less secure, and sets us up for financial catastrophe.

how to Reduce Your Debt Amid Rising Inflation Costs

Inflation is one of the reasons so many people purchase houses and property even before they have the money — inflation makes cash less profitable or secure. There’s a reason the government and large banks support creating inflation. It pushes individuals into debt. It makes consumers slaves to creditors. It transfers wealth from savers to people in debt. It stops frugal people from being able to make ends meet unless they have large incomes.

This all means several things:

“Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants, but debt is the money of slaves.”.

Norm Franz

Investing makes more sense. 

Savings accounts don’t pay interest that’s higher than inflation. This means that most people will use the stock market to build up wealth over time — they have to take part in the financial system. Plenty will get fleeced in the system. Big financial institutions make more money this way.

Debt makes more sense. 

This should be obvious. You’re using inflation to essentially get free money. Most debt comes from banks, meaning you’ll be a voluntary debt slave to a bank because it’s profitable to become one. You’re shackled to the system.

An independent retirement is difficult.

 Being able to save your own money for retirement is much, much more difficult with inflation. If it wasn’t for inflation, social security would be much less likely to exist. This means inflation makes the people more dependent on the government.  If you save $1,000,000 for retirement over the course of 50 years, and inflation is 4.07%… you actually only save $136,000 in today’s money, which probably won’t be enough to own a nice house. Right now, inflation is skyrocketing. Gold is exploding. The dollar is dying. This is all happening in a way that is destroying savers, rewarding debt, and creating an economy that is based on debt and insecurity. Does this mean you shouldn’t save? Does this mean you should go into debt? Not quite. I’ll be writing what you should do in the future… hint: gold is a great inflation hedge.

The Saver and the Slave : An Inflation Story

There were once two men who were neighbors. Their names were “Jack” and “John”. Jack was a saver. He spent his entire life saving every penny he could get his hands on. He saved money with coupons, saved money by buying stuff only in off-seasons, saved money by spending as little as he could, etc. He was a saver. By the time he was 45, he had saved exactly $100,000.

John was a spender. He spent every dime he ever earned. Back in his 20s, he even took out a $100,000 loan, and bought two houses with it. He never used coupons, never looked at prices before buying anything, and wore nicer clothes. During this time, inflation started to hit in. Inflation was fairly high. By the time Jack and John were 45, inflation destroyed 90% of the value of the US dollar. For Jack, this was disastrous. He spent his whole life saving $100,000, and suddenly it was worth only 10% of what it should have been worth. This means that rather than having 100k it was as though he only had 10k. Not enough to even buy a house. For John, this was perfect. He spent his whole life spending his money, so he didn’t see his money lose value. He took out a 100k loan, but his loan was only like he had a 10k loan now — and he still has two houses. John ended up selling one house, paying off the loan, and walking away with a free house, and 90k.

Does government cause inflation?

Although the politicians may say otherwise, many believe the government benefits from inflation and has had policies encourage rising prices since the early 1900s when the Fed came into existence.

Inflation hurts normal people by increasing the gap between income and costs such as food, housing, gasoline and natural gas. Inflation makes it nearly impossible to save, because it makes savings worth less and less.

So, why would the government intentionally encourage practices that increase the level of inflation?

Peter Schiff has a few answers for the government’s infatuation with inflation in his book, “Crash Proof.” It’s easily one of the most important books you should read if you want to see a realistic view of economics, the government, and what’s in store for the future. Schiff is one of the few economists/investors who predicted our current recession before it was popular to do so. He’s also one of the few investors and economists that I trust, because he doesn’t take on irrational optimism or pessimism — he looks only at the undeniable economic facts.

Inflation makes easy for government to pay debt.

One of the primary reasons there is inflation: paying off the national debt is easier. Think of it this way, the money borrowed is being paid back with money that is worth less. The national debt was borrowed when the dollar had more value and is now being paid back with dollars that actually have a lower value. This is the essence of the benefit to the government of a devalued dollar. While this may seem like taking a huge gamble, and many see this strategy as one leading to eventual economic doom, it has been the underlying philosophy of the government for decades. Print more money, devaluing it, in order to pay off debts with nearly worthless money.

Several more advantages to the government become apparent once this is understood. Social services are easier to finance, benefiting politicians who don’t want to anger voters by cutting or dropping services.

Moderate inflation is associated with economic growth.

Inflation also gives the appearance of economic growth. Charts showing strong economic growth over the decades give the false impression that the economy is healthy and booming. Economic “growth” doesn’t necessarily mean economic health. People believed that they were building wealth when real estate prices soared. The disastrous results of the real estate boom are now being suffered by many. Those assets are now devalued along with the dollar; inflation booms end in deflation busts.

Increase Taxes for Most People with inflation.

Another benefit to the government during inflationary times is increased tax revenues. Soaring property values brought in higher local tax revenues, increasing prices increase gross sales tax receipts, and increases in income generate more income tax revenue. While government benefits, working people rarely do during times of inflation.

Inflation can be tricky to track. The core inflation rate, the ones the Fed uses to make economic decisions, purposely excludes food and fuel from the index. The reasoning is these two commodities are volatile in value and frequently dependent on factors other than economic policy, such as weather. Although this exclusion makes some sense, looking at the long-term trends in food and fuel costs gives a clearer indication of actual inflation. Once again, working families are the ones who suffer as the cost of fuel and food rise much faster than incomes. In the end, the government supports inflation not because it helps us, but because it helps them. It makes the national debt easier to pay off by screwing over lenders. It makes the economy look like it’s growing while it’s actually being undermined. It helps the government collect extra tax revenue without actually needing to pass new taxes.

What is the true actual Inflation rate?

The inflation rate is extremely oversimplified by almost everyone — experts and laypersons alike. It’s often seen, for “statistical” reasons, as a single number. Money is either worth more or less every year, and that’s just how it is… according to most economists.

This is devastatingly incorrect. Inflation isn’t static. Inflation doesn’t go up in general — deflation doesn’t increase in general. The reasoning for this is simple, but seems to escape even the most popular financial minds.

Inflation and deflation co-exist.

There’s a raging debate amongst economists around the world as far as what the greatest monetary risk is right now: inflation or deflation? Inflation is where money loses its ability to buy things; deflation is where prices are falling and businesses make less, slowing down the economy.

So, which is the most important? Both are. Inflation and deflation are both dangerous. They’re both happening. Prices are both rising and falling — it just depends on the market. About a week ago, I explained that food and fuel costs were exploding 20-40%. At the same time, it doesn’t take more than a trip to the mall to see clearance signs and racks everywhere — stores are slashing prices to attract buyers, and they’re doing that because sales are extremely slow.

Some prices are extra important.

Economists figure out what the inflation rate is by figuring out how much prices have increased over the course of a year. They get the price data from the core Consumer Price Index, which is put together by the government. This is a simplified understanding, but it works for the purpose of this article.

The problem with this is simple. Because the “index” of prices is simply an economist adding up all the prices and then averaging them out, it’s unavoidable that some products and services will rise more than others. It’s just unavoidable. This is why there’s usually both inflation and deflation going on at the same time, like we’ve talked about before. This means, depending on your spending habits, you could get hit extra hard by inflation — or not too bad at all. It just depends on which prices are skyrocketing and which aren’t.

For example, let’s say food and gas prices double. This probably won’t affect George Soros anytime soon, but for individuals in the middle and lower class who are just trying to earn a basic living, this is a pretty tough situation. I know there were times in my past where if food and gas prices doubled, I would have then gone hungry.

Of course, if the price of TVs and microwaves had doubled, I probably wouldn’t have been affected as much… I wouldn’t have purchased those things, or would have just gone and purchased used ones. But food and energy? Can’t buy that stuff used… I would have been screwed. The consumer price index — how we measure inflation — doesn’t factor food and energy, because the government claims those two areas are too volatile to factor into account. Convenient. In other words, the consumer price index is bull — inflation is really something like 15%+ for most Americans right now, even though they’re reporting it at ~7%.

So, let’s recap: the government is reporting an inflation rate right now somewhere to the tune of 1-2% so far this year. Doesn’t sound bad… except it doesn’t factor into account 20-40% increase in food and energy prices. Oops.

What’s the Real Inflation Rate?.

From a financial perspective, it’s useful to look at inflation like it’s a subjective concept, and not an objective one. The real inflation rate depends on how you spend your money — it’s subjective, not objective.

  • Not High. If you spend your money on objects and products that haven’t increased in prices, then your inflation isn’t very high at all.
  • Very High. If your budget is relatively small, and food and fuel and other skyrocketing things take up most of the space, then inflation is painful for you — it’s really high.

The real rate of inflation depends on where you are in life. There’s no way around this. Chances are, regardless of who you are, inflation is going to be much, much higher than whatever the government’s reporting. This means you’ll need to find a way to increase your net worth and investments by at least 7-15% per year just to break even.

How to Hedge Against Inflation.

One method for setting an investment amount aside in the event of inflation, or even hyperinflation, is to invest in precious metals such as gold and silver. Precious metal pricing is still set by a fluctuating market; however, in recent years gold has increased in value exponentially compared to its price per ounce just a few decades ago.

Tangible assets in precious metals are not as susceptible to fluctuating paper currency values and have traditionally been a safe investment.

One government issued insurance for investors against inflation is the Treasury Inflation-Protected Security. These bonds are issued by the United States Treasury department and are indexed to account for inflation over a calculated period of time. The principal of the bond is determined by the Consumer Price Index, which is the calculated measure of inflation.

These are the two most common methods of preparing/hedging against inflation. To learn more about inflation and inflation hedging, check out Inflation, which explains the rest of how inflation is created, how it hurts us, and how to prepare for it.

The interest for the security fluctuates when it is multiplied against the adjusted principal amount of the bond. The principal amount will never change, with this type of bond currently available in five, ten and thirty-year maturity notes.

Difference between creeping inflation and hyperinflation.

The American Heritage dictionary defines inflation “as the persistent increase in prices.” It also defines it as “the persistent decline in the purchasing power of money.” In other words, inflation is when your dollar can buy less and less every day. In America, for example, in 1920, it cost an average of twenty-five cents to go to see a movie show. Today, in 2024, a movie ticket costs an average of seven dollars. That’s inflation, and it’s eating away at our economy.

Where is the Hyperinflation in America?

People get confused about the nature of mass inflation, hyperinflation, and what causes both. Historically speaking, hyperinflation is essentially always a political event. Someone loses a war, the government collapses — some huge dramatic political event happens that triggers the hyperinflation.

After this huge event, the politicians in charge generally begin printing money and dishing it many times more than existed the year before… as inflation begins to pick up, the leaders then also generally speed up the printing.

This is very unlikely to happen in the United States in the very near future. We’re absolutely going to suffer from inflation, and we have plenty of malinvestment bubbles created by the Fed, but the end result is going to be stagflation rather than hyperinflation. I’ll explain more below.

What is Hyperinflation?

First, high inflation and hyperinflation are different. I think we’re going to see high inflation over the next five to ten years — unless something goes very, very wrong with the economy, that is. But that’s not hyperinflation.

Hyperinflation is when people spend money as fast as they can because it’s losing value on a daily or weekly basis. In other words, it’s when savings of any sort become stupid. That’s absolutely, absolutely not the case right now. People who understand the value of cash have made a killing, because we’re not yet in a hyperinflationary economy.

Why Hasn’t Hyperinflation Hit Yet?

Hyperinflation isn’t going on right now. Even gold prices keep on falling. Some prices are going through the roof, but nothing close to what it would be like in hyperinflation, especially not since some other prices are staying steady or dropping. Sure, inflation is occurring– but not hyperinflation.

Hyperinflation hasn’t hit yet for several reasons:
  • Credit dried up. During 2008 to now, credit isn’t what it used to be. We went from credit being something anyone could get to it being almost impossible for huge hunks of society to get loans. It might be bad economics, but that’s deflationary. And the Fed and even congress’ printing hasn’t put enough money into the economy at a rate fast enough to counteract much of the loss in the supply. There’s more money, but just barely. Maybe that will change soon, but so far it just hasn’t happened.

Remember, in our economic system, debt is currency. That’s where the “currency” comes from. It’s a horrible system that creates huge bubbles that have to burst, and it will probably cause dozens of more depressions over time. But it’s still the system we have.

And during a recession and/or a depression, credit dries up. Banks are afraid to lend money. That means deflation kicks in. So if $500b in loans are not lent out, then we’re going to have deflation — even if the Fed lowers interest rates.  That’s just the world we live in, for better or worse.

  • Printing is “too” slow. For hyperinflation to hit, they’ll need to simply issue much, much more currency, especially with all of the credit slowing down and/or drying up. They’ll need to print more money than loans aren’t being loaned out — and that’s just not going to happen anytime soon. If hyperinflation happens, it won’t be because of anything currently in the news. If anything, we’re about to head into a bunch of more deflation — especially because of what’s going on in Europe.

When I say that the printing of money is happening “too slow”, I don’t mean that I want them to print more — I’m a hardcore capitalist. I want the government to be a fraction of the size it is right now. I hate deficits and I hate government debt.

But that doesn’t mean that the printing of money is creating hyperinflation — at least not yet. Even during QE2, when the Fed essentially bought government debt with newly “printed” currency, the impact was minimal because the purchased debt is just on the Fed’s books… it’s essentially the government paying the government money.

In other words, that money isn’t in circulation yet, and probably won’t be in circulation to the extent to trigger anything like hyperinflation.

People who are always predicting hyperinflation might be right, but not because of what’s happened so far. In a world where debt is money, a drop in the availability of new credit is essentially a drop in the money supply. And that’s why hyperinflation hasn’t hit, and won’t hit unless something drastic happens.

Can the Fed Cause Hyperinflation?

The Fed doesn’t print money and most likely can’t “create” inflation. They can only allow inflation to be created — but that requires the banks to do a bunch of lending. That’s not going on and during a horrific recession, it won’t happen. If we’re about to go into economic crisis, I wouldn’t take money to lend out to random consumers. That sounds like a good way to go broke.

There was, of course, huge backlash against Quantitative Easing. I also reacted to it. It was inflationary, though the impact ended up more of a wash — at least so far — than anything else. The Fed is trying to play duct-tape with the economy, and even that’s not currently working. Basically, the Fed is running out of bullets.

Some called QE2 “monetizing the debt”. Even some of the more conservative members of the Federal Reserve did the same. After all, the Fed did create new money and bought T-Bills. There’s more money in existence. So why didn’t this create massive velocity and explode consumer prices more than the jump that it did cause?

The reason is pretty simple… they just bought US debt, but it’s still on the balance sheets. When they did that, the reserve requirements suddenly changed. That’s why even Ben admitted that the QE really didn’t achieve anything except a psychological impact. Just because there’s more money on the Fed’s balance sheets doesn’t mean that that same money will hit the market.

I’ll explain more about this in the next week, because it can get hairy, but here’s a simple explanation:

If the government printed $1 Trillion dollars and sent that cash to the moon, would that create massive inflation? Of course not. That money is on the moon.

That’s one of the reasons QE2 hasn’t had the huge impact many thought it would… the overall amount of money in circulation barely changed. I disagree with QE2. Heck, I disagree with the Fed in general. But that doesn’t mean that every bad idea they have will create massive or hyperinflation.

This is the most important thing you can learn from this article is this:

The Fed can’t print money at will. It can only lend money out when there’s a demand for credit or buy certain assets already in existence. And during a recession, it’s very, very hard to lend that money out.

The treasury prints money because of deficits, and then afterwards issues bonds to try to manage the overnight rate. And the treasury prints money to do Congress’s bidding. In other words, the only people with real access to the printing press are congressmen.

The Causes of Inflation.

Numerous reasons exist for inflation, perhaps even too many to catalog. Generally, however, high interest rates, an increase in taxation, and a new scarcity of a popular product, like gasoline, for example, are considered predominant causative factors.

However, cyclical causes, too, can cause inflation. The cost of running a business causes the price of its goods and services to increase. This cost, passed on to the consumer, means that paychecks don’t go as far. Since the employee now asks for increased wages to meet the new price of living, this again forces the cost of a business to go up. In essence, then, inflation is a vicious cycle–because it perpetuates itself.

Two types of inflation occur in any economy.

One is natural inflation and the other is artificial inflation.

Natural inflation is a result of price increase due to a change in supply and demand. If demand outstrips supply, the price of the product will rise in price.
Artificial inflation is a result of a price increase due to an external force. In the United States, after the economic stimulus plan, billions of extra dollars were pumped into the economy causing even more inflation.
When the supply of money in an economy falls, simply printing more money can drop the value of money. The money printed and distributed by the federal bailout, extra money not related to demand or supply nor tied down by a gold standard, reduced the value of every dollar.

Germany after World War I is a classic example of how more money pumped into an economy reduces the value of money. After the first world war, Germany, faced with $33 billion in war reparations, simply could not produce the money from a dynamic exchange of goods and services, the usual way money is generated in an economy. In desperation, the government printed the money, money that was not backed by a gold standard. The result was disastrous. Something that cost one mark in 1919 cost 726 billion marks in 1923. One U.S. cent was worth 42 billion marks!

Sometimes inflation can be a result of both natural and artificial causes. In America, the rising price of gas is a result of the declining value of the dollar in relation to other national currencies — especially true after we dumped the gold standard. It is also a result of demand for gasoline exceeding available supply.

Variation In Inflation.

Inflation can fluctuate. Prices can go up and down. For example, during summer more fruits and vegetables can be grown, which results in price dropping, and in winter less fruits and vegetables can be grown, which results in price increasing. However, inflation is measured on a broad range of goods and services and the individual rise and fall of products due to market forces is not sufficient to cause an alarm. In a mature economy, these fluctuates are usually steady over a long time.

Difficulties In Measuring Inflation.

Unfortunately, inflation is not always easy to understand. The result is that it is difficult to make sound economic decisions. The causes of inflation are not clearly understood because there are so many market forces at work at the same time–for example, both the housing market and the educational industry show increasing prices despite fluctuating economic conditions. In the housing market, demand for houses exceeded the rate at which they were being built, and this caused the price of houses to go up. However, even when many new houses were built, the price of houses still continued to go up.

In American universities, colleges, and trade schools, the price of tuition has been increasing annually for no discernible reason. The quality of education, the demand for education, and the supply of learning institutions have been relatively modest in comparison to the big hike in student fees.

Inflation And Mass Human Psychology.

Apart from natural inflation, artificial inflation, and everything in between, inflation is also subject to mass human psychology.

As perceptions about the value of things change, inflation is affected. Fluctuating human psychology can create waves of demand or loss of it in an economy. Sometimes speculators panic in the Stock Market and at other times mass hysteria follows a change in political direction. Previously, these collective mood changes, were not as dramatic when currency was based on the gold standard. In those days, changes in perception could be tied to something concrete, like the price of gold coins and the amount of gold available. Nowadays, a rumor, whether well-founded or fickle, is enough to create inflationary changes in an economy.

In addition, besides changes in the national perception about value, international perceptions can affect inflation. One day, the American dollar can be equal to five francs, the next day it can be worth three francs, the fluctuation due to policy and attitudinal changes between both countries.

Why Inflation Matters.

When the rate of inflation is steady, as it has been in the United States over the past 30 years, this does not affect, in any appreciable way, the purchasing power of an employee’s paycheck. However, when inflation rises faster than the rate of pay, people feel the crunch. This is most noticeable when the paycheck disappears entirely because the company can only stay in business by hiring less people.

In the past three months of 2019, payroll job losses in America have averaged 135,000 a month–a sign of hyperinflation. The value of a currency cannot continue to fall indefinitely. Unchecked inflation is a national crisis.

This is why you should buy gold coins — or even gold bullion. Regardless of how you get it, gold needs to be part of your portfolio. The dollar is doomed. The history of gold says to invest in gold. You can’t afford to wait.

The coming great inflation and the gold price.

However, most of the time, people never needed the advice of any “financial expert.” In fact, it was the advice of these so-called professionals causing the breakdown of so many retirement plans and nest eggs.

All that is necessary to find a great investment is to look at the conditions of the world economy and see what is flourishing. For instance, even during the worst parts of the recession, the gold price per gram was on the upswing with little more than a hiccup. In fact, gold performed better the worse that the recession got. There is some historical precedent for this, but the special circumstances of the Great Recession actually added opportunity for many investors.

The gold price has almost always gone up during recessions.

Gold is a historical hedge against falling security prices. The Great Recession saw even more volatility in securities, so people naturally flocked to the finite, natural resource with a definite value.

  • Gold correlated with inflation but has a delayed effect.
  • Gold rose in 6 of the last 8 recessions; silver, platinum and palladium do not do well in recessions
  • Kitco didn’t state the fact we ARE in a recession. 2 quarters of negative growth is the definition.

Ever since the monetary system in the United States was separated from the gold standard, Fiat money ruled the securities market. This launched a five-decade slow spiral downward into overpriced stock bubbles that eventually burst a number of times, most notably during the tech burst in the 2000s and the real estate debacle of 2008.

People flocked to gold because of the certainty of the supply and the guarantee of the price. Gold is needed across the world for so many things that it will always have real value. No other investment outside of the precious metals market has this sort of staying power.

The Great Recession added the volatility of the world market. Emerging markets like China, India and Brazil continue to upset the balance of economic power along the hemispheres. Without this stability, Western first world powers cannot ensure that they will not be outgunned by businesses in the Eastern economic bloc. The United States recently found out how difficult they would have it when the Chinese effectively boxed them out of the solar power market by subsidizing their solar businesses 10:1 over United States government subsidies.

Throughout all of this, the only constant was precious metals. Gold, as the most highly trafficked of any of these precious metals, is the go-to investment when it comes to economic uncertainty.

However, many investors mistakenly think that just because gold has gone up so much that there is no more gain to be squeezed out of the precious metals market. This is a naive investing mistake that has been keeping many investors from protecting their expendable income and their retirement funds from inflation.

How to invest during a recession.

The proper way to invest in precious metals is to see if the conditions that persisted through the big gains of gold still persist.

As we speak, the world is still just as volatile, stock prices are still just as disconnected from company performance, and though there is a great deal of economic recovery happening throughout the world, most citizens are not feeling the direct effect. Unemployment rates remain high. This means that there are not as many people exchanging funds in the general economy. This decreases the real profits of businesses (as opposed to the accounting profits, which can be manipulated). As long as these businesses don’t grow, the real economy (as opposed to the accounting economy, which can be manipulate) will not give investors any real gains.

In these conditions, gold price will continue to increase. This trend has been shown to continue even as the dollar gains some ground on the Yen and other currencies. This is because investors are simply taking advantage of overreaches on the downside of the currency market. However, in the long term, currency will still be the volatile, money losing investment that it has been over the past decade.

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