Kerby Anderson

My discussion yesterday about the attributes of sound money ended with a sobering realization that the US money supply has dramatically increased in the last year or so. One obvious result has been inflation. There is also every reason to believe that the Federal Government and the Federal Reserve will print even more money to meet our financial obligations. Most of our economic problems in the last few decades have been currency-based. When you print too much money, you have inflation. Investors will be paid back in devalued dollars. Citizens receiving entitlement payments will be paid in devalued dollars. This will be the result of fiat money. In previous centuries, kings and citizens engaged in coin-clipping. This was a form of inflation, but at least it was visible. Today, paying back investors and citizens with devalued dollars is less visible and more insidious. In what many regard as one of the most important economic books of the twentieth century, British economist John Maynard Keynes noted how inflation affects a nation and its citizens. He said: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” He also added, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law that come down on the side of destruction and does so in a manner that not one man in a million is able to diagnose.” What is the impact of inflation? The impact is felt in higher prices. In fact, the classical definition of inflation is “a rise in the general level of prices of goods and services in an economy over a period of time.” Inflation is in our future. A wise investor should take note.