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Monday, August 8, 2022

What makes inflation?

Inflation happens when government spends money that doesn't exist.  The government simply makes a law that the money exists. then they spend it.  

The effect is like if we have a balloon, called the economy, that has so much air inside it.   Using the analogy, putting more money into the economy increases the air pressure inside and expands the balloon size.  The actual material of the balloon is stretched even thinner over more air.

That is the effect of inflating the money supply. The is more pressure on the economy, but the actual substance of the balloon is not any more than it was.

Many folk get the idea that the Consumer Price Index is the measure of inflation.  Thus the various price increases we have had under the present administration would be viewed as inflation.  But this is an error.  Prices change all the time in a free economy.  Inflation is a general reduction in the scarcity of dollars.  Dollars become more plentiful relative to everything else.  Thus the value of money goes down and the price of almost everything goes up.

This is no taxation in the conventional sense.   But the money you have loses its value because of the sudden increase in money supply in circulation.  Prices go up in dollar terms, and everyone becomes strapped for cash.  Except for the out-of-touch government people who spent the money.  They feel flush.  They should be.

The Congress looks ready to spend $430 billion, which is ironically called the "Inflation Reduction Act",  in money we do not have.  The inflation resulting from this bill will be on top of already existing inflation of 9.1 percent. 

The Democrats "Inflation Reduction Act" is about climate control (Reuters). The Reuters article also states the Democrats were trying to fend off amendments when they passed the bill and they tried to amend it with a price control on insulin.  The Democrat controlled media promptly blamed Republicans (ABC).


Gross Domestic Product (GDP) declined 2.5% so far in 2022.  (,

When GDP declines in the face of inflation, it means the economy is strapped.  Inflation, which sometimes works to stop economic decline, has failed.

What is needed is a loosening of tightened restrictions on economic activity.  The "Inflation Reduction Act" includes money and authorization to hire 87,000 more IRS agents to audit people who make less than $200k per year (Dailywire).  Loosening of restrictions to help the economy does not look likely. 

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