The Real Winner: Inflation

Article posted on November 29th, 2012 by Jack Kneafsey

Inflation Road Sign 18908630By Jack Kneafsey

This is the title of a very informative commentary written by Matthew Stevenson for Reuters, which unfortunately does not allow for full republishing of its articles. So, I am providing you with several excerpts of its main theme, and strongly suggest that you read this entire commentary at the link below.

Stevenson’s main theme is that the results of our recent election had nothing to do with the “normal” explanations given by the media. Rather, this election was “was, as always, a contest between gold standardists and inflationists.” And, the real winners were the advocates for easy and cheap money.

Frankly, his comments and theory seem rather well-founded, and might, in fact, explain some of the recent voting patterns.

Specifically, Stevenson argues:

Inflation won because it is the panacea for all that ails the body politic: a short-term cure-all that promises economic growth, the possibility of paying off runaway national and international debts, new-found prosperity for the middle classes and liquidity for the impoverished, who otherwise would be voting in the streets with rocks and burning tires.

The magic of inflation, before it turns everything to dust, is that it papers over a number of intractable financial problems. The United States is now able to run monumental trade and budget deficits, fight multiple foreign wars, vote tax cuts, extend unfunded pension and healthcare benefits to citizens over age 65 and spend money with Medici-like munificence on myriad federal programs by printing money or borrowing in national and international capital markets.

Another reason inflation enjoys such electoral pull is that it allows the political classes to maintain the illusion of power and authority.

The reason inflation finds so many willing partners is that, initially, it seems a painless way to pay off thorny debts; raise the illusions of prosperity (“Wow, I got a raise”) and provide society with a veneer of fairness. What stops the inflation Ferris wheel is when the currency is reduced to worthlessness.

Given all this desire for inflation, Stevenson concludes that the economic carnival will end when the dollar is no longer acceptable as a reserve currency, first in international markets and later domestically.”      (my emphasis)

You should read all his comments at Reuters here.

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