It’s Time for the Average Joe to Understand Inflation

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Thomas Sowell’s Twitter

“It’s Joe Biden’s Inflation. He blames Vladimir Putin, but his policies and the Federal Reserve are at fault.” — WSJ

Joe Biden has recently been claiming that inflation comes from Vladimir Putin.

“We have to talk about it because the American people think the reason for inflation is the government spending more money. Simply. Not. True.” -Joe Biden at the House Democrats Caucus Conference.

“‘Let’s be absolutely clear about why prices are high now are high for two reasons. One was COVID — the way the global economy works,’

‘Now a second big reason for inflation is Vladimir Putin. Make no mistake — the current spiking gas prices is largely the fault of Vladimir Putin.”

In fact, inflation was its highest in over 40 years and climbing before Russia made a single move.

Even NBC news isn’t letting Joe get away with this claim:

“Joe Biden won’t get away with blaming Vladimir Putin for inflation. Inflation has been rising for six months, well before Russia’s invasion of Ukraine.” — NBC News

Logic tells us he’s deflecting blame because the democrats are very poorly positioned going into the midterms.

  • 68% of Americans say the country is on the wrong track
  • 47% of voters said Republicans were better able to handle inflation, but only 30% said that of Democrats… And, in a troubling sign for Democrats’ prospects in November’s midterm election, which will determine control of Congress, most voters — 45% — said Republicans had a better plan to improve the economy compared to 37% who said that of Democrats. — WSJ

Politicians placing blame elsewhere for the consequences of their policies is as old as government. But we as a population do have to be able to understand and discuss inflation like adults if we want to be able to bring it under control.

“There’s only one culprit. It’s that we kept interest rates at 0% and then printed trillions of dollars” — Anthony Pompliano

Saint Louis Fed

The graph above shows an unprecedented explosion in the money supply, provided by the Federal Reserve themselves.

There is a debate about the causes of inflation. You get to choose which one you follow.

The Austrian school, which is most closely aligned with advocates of “hard money” like Bitcoin and gold, says “Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit.”

The Keynesian view, which is widely held by American mainstream economists, believe that “changes in the money supply to not affect prices in the short run” but that inflation is the result of “demand pressures.”

So do you believe that the accelerated inflation we’re seeing is the result of the increase in money that we see in the graph above, or increased demand? Maybe a little of both? Economics is not a hard science, it’s a social science. It’s up for debate. The investment decisions you make, and the policy solutions you seek are a result of the school you choose to follow. Choose wisely.

But in any case, out of control inflation is a nasty game and should be taken very seriously. At its absolute worst it tears countries apart at the seams. It was a key driver in why Adolf Hitler was able to take over his government. The decrepit Weimar leadership had very little support from the people after they destroyed their currency.

Wikipedia

It’s why Venezuela has lost 5 million of its citizens in recent years and is in shambles.

Venezuela Launches 1 Million Bolivar Banknote Worth 50 US Cents Amid 2,665% Inflation Rate — Exchangerates.org

In Caracas, a 5lb chicken worth $2.50, costs 14,600,000 Bolivars. — BBC

I’m not suggesting that the United States will experience hyperinflation. I’m merely saying that it be taken seriously. But some people with a much better vantage point than my own are already sounding the alarm.

Jack’s Twitter

After all, Democracy is predicated on the ability of the population to make rational decisions. This is one reason we instinctively hate misleading information. We must resist overly simplified explanations such as: inflation is caused by Vladimir Putin.

Saying that money printing doesn’t lead to inflation is like saying emissions don’t lead to climate change. There is a clear cause and effect, but in both cases you can find experts to provide support for the continuance of the status quo. In the United Stated, that status quo is unchecked money printing.

So what to do? To combat this kind of misinformation, first learn about money. One of my favorite thinkers on the subject, Lyn Alden, just released a great piece called “What is Money?” This is essential knowledge for understanding the monetary experiment we’re engaging in now, why it’s failing, and how you want to position yourself for the future.

Secondly, hold hard assets like gold and Bitcoin. When you study modern fiat currency, you quickly realize that it is not designed to hold value. It’s designed to lose value at a steady rate. The inflation we’re seeing now is simply an acceleration of the norm. Storing savings in fiat currency is like storing water in a bucket with a hole in it. As years go by it will by you less house, less car, less food, by design. My question to you is, once you understand inflation, why would you choose to store value in something that is designed to lose value against nearly all assets over time?

Matt Harder runs the civic engagement firm Civic Trust, where he guides cities in re-building their civic infrastructure by helping residents, civic organizations, and local government collaborate to build public projects. He is a passionate Bitcoiner. Follow him on Twitter.

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