From Inflation: What It Is, Why It's Bad, and How to Fix It. Steve Forbes, 2022. Kindle online sample. Section 2.
Adam Smith described in 1776 true wealth is created by people meeting each other’s needs in the marketplace.
Buying, selling, and innovating.
That is as true today as it was during his time.
WEALTH IS CREATED BY TECHNOLOGICAL ADVANCES THAT CREATE JOBS, INCREASE PRODUCTIVITY, WHICH GIVE RISE TO STILL MORE INNOVATION AND WEALTH CREATION.
Think of the millions of jobs, the countless ancillary businesses, and the spectacular wealth created by devices like the iPhone or by e-commerce sites like Amazon.com.
These innovative businesses, and others like them, are what move humanity forward.
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Chapter One, “What is Inflation?” explains the difference between what inflation actually is, and what many of us think it is.
Most people think of inflation as being about “price increases.”
However, higher prices are the effect of inflation, not the cause.
THERE ARE TWO TYPES OF INFLATION, NON-MONETARY AND MONETARY.
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The price increases of “non-monetary” inflation are driven by rising demand for products and services that, most often, occurs naturally in markets.
The other type is “monetary” inflation, resulting from central bank money “printing money” [increasing money supply] or other events that cause currencies to lose value.
Our FOCUS IN THIS BOOK IS ON THIS SECOND TYPE, MONETARY, INFLATION and how it’s been responsible for centuries of economic and social destruction.
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Chapter Two, “Not-So-Great Moments in Inflation History,” looks at some of the most infamous examples of monetary inflation, beginning with the fall of Rome.
All have been “HUMAN-CAUSED DISASTERS” BROUGHT ABOUT BY GOVERNMENTS DEBASING THEIR CURRENCIES, USUALLY BY CREATING TOO MUCH MONEY.
However, Chapter Two makes the under-appreciated point a large money supply does not automatically mean inflation.
The value of currency, like the value of everything else in the economy, is determined by the ratio of supply to demand.
Thus, tiny Switzerland has little inflation despite having a large money supply relative to its size, because the Swiss franc is in high demand as one of the world’s most trusted currencies.
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Chapter Two also looks at the question being asked today by socialist advocates of Modern Monetary Theory (MMT): Why can’t we just print money? After all, until the recent pandemic-related price increases, THERE HAD BEEN RELATIVELY LITTLE INFLATION DESPITE THE FED’S HISTORIC EXPANSION OF THE MONEY SUPPLY known as “Quantitative Easing,” undertaken to revive the economy after the 2008 financial crisis.
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Proponents of MMT argue, with some justification, both the Fed and the European Central Bank are already operating according to MMT principles.
We explain why THIS APPARENT DEFIANCE OF MONETARY “GRAVITY” IS ESSENTIALLY AN ANOMALY—THE RESULT OF BANKING REGULATIONS AND CENTRAL-BANK MANEUVERS.
These one-time events have hindered bank lending and have kept money from flooding the economy.
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More recently, some Fed watchers suspect a more severe inflation has been held at bay by an arcane-sounding central bank transaction known as a reverse repurchase agreement (informally known as a “reverse repo”).
We explain in Chapter Two this gimmick has been employed by the Fed to mitigate, at least temporarily, the full effects of central bank money creation.
It may seem like the Fed can “just print money.”
But, as rising consumer prices may finally be telling us, gravity can only be defied for so long.
THE “JUST PRINT MORE MONEY” PRINCIPLES OF MODERN MONETARY THEORY ARE A RECIPE FOR HYPERINFLATION.
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Chapter Three, “Why Inflation Is Bad,” explains why all degrees of monetary inflation are ultimately destructive.
Economists at the Federal Reserve insist creating a low level of inflation is “good,” they say because it encourages prosperity.
This misguided belief has become the Fed’s Holy Writ, thanks to the influence of THE PHILLIPS CURVE WHICH SUPPOSEDLY CORRELATES INFLATION WITH PERIODS OF HIGH EMPLOYMENT.
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Seven Nobel prizes have been awarded to economists who have disproved this misguided association.
Yet, like so many bad ideas, it manages to persist.
The reality, however, is the reverse.
INFLATION MAY INITIALLY BRING ON A “SUGAR HIGH,” BUT SOONER RATHER THAN LATER, THE ECONOMY AND JOB CREATION STALL.
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This is true not only of countries that are the worst monetary offenders.
The United States has also paid a price over the last five decades as a result of its slowly weakening dollar.
Had the nation maintained its growth rates of during the 1950s and ’60s gold-standard years, IT’S ESTIMATED THE ECONOMY WOULD BE AT LEAST 50 PERCENT BIGGER THAN IT IS TODAY.
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But the most devastating effect of inflation is its impact on social trust.
Money, after all, was invented to enable trade between strangers by providing a mutually agreed-upon unit of value.
In other words, it is a facilitator of trust.
Markets are people.
When money is no longer a reliable unit of value, not only trade but social relationships ultimately unravel.
NATIONS AFFLICTED BY EXTREME INFLATION END UP EXPERIENCING HIGHER LEVELS OF CRIME, CORRUPTION, AND SOCIAL UNREST.
As we have seen throughout history, the end result of inflation can be a tragic turn to strongmen and dictators.
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Chapter Four, “How to End the Malaise,” explains inflation can be stopped surprisingly quickly if properly understood.
THE PROBLEM WITH INFLATION-FIGHTING APPROACHES LIKE PRICE CONTROLS IS THEY FOCUS ON SYMPTOMS OF INFLATION, not the cause, which is a decline in the value of currency.
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The chapter explores the relatively rare record of inflation-fighting successes: Ludwig Erhard’s triumph over Germany’s post-World War II inflation.
Detroit banker Joseph Dodge’s similar victory over inflation in postwar Japan. Paul Volcker’s eventual beating of stagflation in the 1970s in the US.
ALL THREE INFLATION-DEFEATING SUCCESSES WERE THROUGH INITIATIVES AIMED AT STABLE MONEY AND LOWER TAXES achieving what our co-author Nathan Lewis calls “The Magic Formula.”
This powerful combination has, time and again, rescued sliding currencies and tamed inflation by unleashing vibrant, growing economies with an appetite for money.
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The chapter also explores the best way to end today’s inflation—a return to gold-based money.
The book outlines a PROPOSAL FOR A NEW GOLD STANDARD THAT WOULD STABILIZE THE DOLLAR without requiring that the country maintain a gigantic supply of gold.
This system could be implemented in a relatively short time, restoring a sound and stable dollar that would serve as the engine for a new era of entrepreneurial creativity and progress.
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Chapter Five, “What About Your Money?” offers guidelines for investing during inflationary times.
The chapter makes the seldom-mentioned observation that securities markets are subject to the distortions of inflation.
Frothy markets can mask declining values, so, investors need to beware.
The conventional wisdom has been a “balanced” investment portfolio with the best ratio between risk and return is “60/40,” meaning 60 percent stocks and 40 percent bonds.
Inflation turns this logic on its head.
The CHAPTER SURVEYS THE BASICS OF INFLATION INVESTING.
We look at the pros and cons of the full range of options, from commodities and Treasury inflation-protected securities (TIPS) to alternative investments like cryptocurrencies.
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Chapter Six, “The Way Forward,” contains ten “takeaways” that crystallize the key points in this book.
It poses the question “Where do we go from here?”
That depends whether Americans reawaken to the financial Law of Gravity imparted to us by John Locke and Isaac Newton namely, the importance of sound money and the destructiveness of inflation.
(end of section 2)
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(own comments)
Section 1:
“Biden has insisted government spending actually suppresses inflation.
Massive spending on infrastructure will enhance our productivity—raising wages without raising prices.”
If this were true to increase productivity and suppress inflation all two lane and four lane bridges should be widened to six lanes, and all new roads and bridges should have at least six lanes.
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“Between December 2019 and mid-2021, the money supply exploded by more than 35 percent, exceeding an astonishing $20 trillion. Larry Summers warned ‘We are printing money, we are creating government bonds, we are borrowing on unprecedented scales.’”
The answers to this and most of life’s problems:
1-Make the complicated simple. Money supply should follow GDP growth, GDP goes up 4% this year money supply goes up 4% next year.
In the future there will be only one common currency, helping to vastly simplify, make more efficient, and enlarge the world economy.
2-Focus on the long term not short term.
In tHAT future after Real Republicans have ascended and everyone is rich and can have wHATever they want, politicians won’t feel the need to put out economic fires because there won’t be any.
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Section 2:
“Nations afflicted by extreme inflation end up experiencing higher levels of crime, corruption, and social unrest. As we have seen throughout history, the end result of inflation can be a tragic turn to strongmen and dictators.”
In the future with an expanded U.S.-model global free market with All-states common currency and common language and money supply going up no more than the rate of Global Demand Product growth oll social problems will be gone, we’ll All be rich, and we’ll be set off on journeys to spread tHAT everywhere.
All this from Eight Dies High retrospect be a frightening prospect for oll the inspiring Omrondles afraid of losing their ground.
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