Inflation is theft

[cd27]

Why inflation will become worse not better

How the government robs you without you even realising and all to feed itself and its own programs,

http://mises.org/story/3522

"The policy of expanding the money stock is the foremost tool of government aggrandizement. It allows financing the state's income, public deficits, and elections, and for expropriating and corrupting members of society in the most subtle way. As Ludwig von Mises noted,
'A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, i.e. of anti-democratic, policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. It explains why inflation has always been an important resource of policies of war and revolution and why we also find it in the service of socialism. When governments do not think it necessary to accommodate their expenditure to their revenue and arrogate to themselves the right of making up the deficit by issuing notes, their ideology is merely a disguised absolutism.'

Those who hope that inflation will now come to an end — given that market is close to contracting circulation credit expansion and the money supply — implicitly express optimism that the government leviathan is on the retreat. Unfortunately, the latest developments — namely, increasing base money and the running up even bigger public deficits — don't support such a view."

[cd27]

and:

"In sharp contrast, Austrians hold that inflation is an increase in the money stock, and that the upward drift of money prices is a consequence of a rise in the money stock; from the Austrians' viewpoint, rising prices are a symptom of an increase in the money stock.

Mainstream economists may say that if a rise in the money stock is accompanied by a (sufficient) rise in the supply of goods and services, an increase in the money stock would not cause inflation, as it would not make prices go up.

From the Austrian viewpoint, such an argument does not hold water, though: had the money remained unchanged, money prices would have actually declined (other things being equal), thereby having increasing the purchasing power of money."

[youngdan]

It is often said as a quip that only 1 in a 1000000 grasp it.

Judging by this site it looks as only about 1 in 50 can figure it out.

[Seos]

Well if you're going to call inflation theft that means that deflation is a gift!

[cd27]

The European Central Bank is now engaging in quasi-fiscal policy according to top economist Willem Buiter,

FT.com | Willem Buiter's Maverecon | Recapitalising the banks through enhanced credit support: quasi-fiscal shenanigans in Frankfurt

"The risk-adjusted rate of return to the Eurosystem on its lending to the banks can hardly be more than 0.70%, given the poor quality of the collateral offered and the dreadful state of the balance sheets of many Euro Area banks. In that case there is a subsidy from the ECB to the banks of just over 0.25 percent, say € 1 bn. While this is a small number, on the gargantuan scale on which bank losses and bailouts are measured these days, it is clearly inappropriate for the central bank to engage in quasi-fiscal operations of this nature. Subsidies should be voted by the appropriate parliaments, not distributed by unelected technocrats."

Power grab.

[cHeal]

Well if you're going to call inflation theft that means that deflation is a gift!

To some extent, yes, your money is worth more and can buy you more and better goods however your debt is also greater, but a constant worth of money is generally better.

From the Austrian viewpoint, such an argument does not hold water, though: had the money remained unchanged, money prices would have actually declined (other things being equal), thereby having increasing the purchasing power of money."

That doesn't hold weight because the population tends to be always increasing, thus in a properly ordered society, your share of the money will dwiddle because of this. In their scenario those with the wealth would never give up what they have (and why would they if deflation is ocurring) and those starting out with nothing would get nothing.

Thus what they are saying is that Deflation is great for the haves but those without must do without.

The money stock has to have some flexibility to keep up with real wealth generated within an economy.

However, Inflation is a stealth tax (or theft) in my opinion and citizens of a nation should never accept it as an inevitable truth. However, while inflation slowly degrades the value of your money, Deflation slowly degrades the value of any investment you may make, as down the line you will recieve less money if you sell that investment on. Keeping your money under your mattress during Deflation would actually increase your wealth more than putting it in a bank during inflation.

Each side of the coin holds it's own evils for any economy and so all governments should try and manage inflation/deflation to a zero sum.

[cd27]

total drivel cHeal, talk about contradicting yourself, you don't understand what you're talking about

[20000miles]

I've spent a lot of time on these boards trying to get people to realise that any quantity of money is able to perform the function of money. It appears I have a lot more persuading to do. :s

[cHeal]

total drivel cHeal, talk about contradicting yourself, you don't understand what you're talking about

I do. To say deflation is good because your money is worth more is rubbish because that completely ignores the need for wealth to re-distribute in order for society to function.

And don't even try and argue that it doesn't discourage investment.

There is plenty of good things about deflation but it is not the holy grail, it has to be regulated just the same as inflation. It can be severely damaging to the economy of a nation.


EDIT: Point in case, deflation is good for me right now because I still make the same amount of money I did last year, but it is not good for those who are coming into the job market because the deflationary spiral and lack of credit has reduced investment in the economy, which has reduced jobs which means without state intervention those just coming out of college would only be hurt by the current deflation because it is part of a number of factors reducing that persons chance of obtaining money.

That's the reality. The quantity of money should be set to the levels of production to make investment worthwhile, and avoid an erosion of money value (in the case of inflation).

[Kensington]

total drivel cHeal, talk about contradicting yourself, you don't understand what you're talking about

I don't know where you are coming from, because what he says is exactly right.

I fear that it is the Austrian economists (and all economists for that matter) who do not understand inflation.

First of all,it is obvious that an increase in the money supply will not cause inflation if there is an increase in the supply of goods and services. That is just commonsense.

Secondly, it is pretty obvious that there is not nor has there ever been too much money in the economy. During the years of the Celtic Tiger, do you remember all the shops empty of goods? I remember the opposite. Supermarkets had (and still do) more goods and services to supply than ever before. Inflation, as we have experienced it, was not caused by too much money, but by the debt-based money system.

I've spent a lot of time on these boards trying to get people to realise that any quantity of money is able to perform the function of money. It appears I have a lot more persuading to do. :s

Technically, it can perform the function, but in practical terms the less money in an economy, the less business can carried out and the less wealth created. This makes obvious sense.

Less money in an economy leads to deflation. If you believe that too much money chasing too few goods leads to inflation, then, what happens when there is too little money chasing too many goods? In a debt-based money system, deflation is devastating.

An expanding and well functioning economy needs plenty money, like a steam engine needs plenty water.

If you think that any amount of money can function well in an economy, take a look at this.

Shays' Rebellion - Wikipedia, the free encyclopedia

http://en.wikipedia.org/wiki/Whiskey_Rebellion