I recently published an article entitled THE PENDING U.S. ECONOMIC DISASTER EXPLAINED IN 10 MINUTES. I heard back from several readers that they felt the article needed to be broken down into smaller bites. While they really liked the article taken together, the three different parts could be confusing. I have taken their advice. This is the first of the three separate articles.
U.S. Economic Pending Disaster Series:
The Inflation Deception Explained in 5 Minutes
The Hidden Truth of Quantitative Easing
Rich Man – Poor Man – A Middle-Class Screwing
The Whitehouse wants you to believe that your 4th of July meal costs you 16 cents less than last year! Does anyone of us believe this deception?
Why do they think we will believe this?
The answer is because we usually do believe it. We are either too lazy to think about what they are saying or are just exhausted from all the arguments. Hyper-partisanship has taken a toll on our nation and a larger toll on our ability to think. When faced with lies from all sides every day perhaps we have just given up. The media used to help filter the truth from the lies, but now they are mostly just an echo chamber for one side or another.
Common Sense
Can someone explain to me how giving money to people for doing nothing, an action that creates no tangible value to society, benefits society? All this new money does is dilute the buying power of all of the U.S. dollars, making them worth proportionately less. After giving out this money, we create a situation where we need more money to buy the same thing we did before. It cost less, now it costs more, and nothing has changed except the amount of paper, printed, credit, and digital, that we need to hand over to get the same darn things.
What is Really Causing the Current Inflation?
Economists declare inflation is when prices of goods and services increase on a general level over a period of time; it is called inflation. Inflation leads to a reduction in purchasing power of the people. People can buy fewer goods and services in the same amount of money, for which they were, use to get more. Excessive money supply leads to higher rates of inflation. Inflation has both negative and positive effects on the economy of any country.
While this may have been correct historically, today, there are other more deceptive practices at work. The following is a simple example to show you how inflation is happening today.
The Setup
For this example, let’s keep everything very simple. As background, there are only two people in the entire world, we only eat two things every day, bacon and eggs, and at the start, the product of one egg is worth $1.00, and the production of one serving of bacon is also worth $1.00.
Before you write me, I agree no one wants to live in this world and only eat bacon and eggs once a day. We all want other things in our lives, like houses, electricity, automobiles, and the internet. And most definitely, I am sure we will both want some other human being to interact with very quickly after finding us isolated and alone with each other, regardless of our compatibility. But, this example will illustrate the basic math of Quantitative Easing quickly.
A Simple Example – About Bacon and Eggs.
Here is an example of how this lunacy works. As is stated above, You and I are the only humans in this world. We each have a total of $7.00 in both paper dollars and coins. Dollar Bills are worth 1 dollar, and our only coin, the cent, is worth 1/100th of a dollar or 1 cent. We work seven days to produce the products, so we earn $7.00 each once a week to buy food for the one meal we eat each day. I can produce fourteen servings of bacon, and you produce 14 eggs. You sell eggs for $1.00 each (keeping seven for yourself), seven eggs to a pack; I sell bacon for $1.00 for each serving, seven servings to a pack (I keep seven for myself). We both shop one day each week, fifty-two weeks a year. We each earn $364.00 per year. We have no savings. We buy from each other because there is no one else in our world. All we eat is bacon and eggs, one meal each day.
I also own the printing press that made our dollar bills, and I own the mint that created the coins. I decide to print $7.00 more coins and bills, which I equally distribute because I am sad that we have been working for years, and we have never made any more money. Before this, there was $14.00 in total Currency in Circulation (CinC); now, there is $21.00 in total CinC. You can still only make fourteen eggs each week and sell seven to me; I can still only produce fourteen servings of bacon and sell seven to you. These are the only things of value we produce—a total of 7 meals each week for each of us.
Each week we each make $7.00 a week on what we sell; we can afford to buy the only things we need to buy; life is simple and good.
The value of all the dollars is based on the value of all the products we create and sell. The value of each of the products in existence, when the total amount of currency in existence was $14.00, was $1.00 each. Since I decided to print $7.00 worth of more coins and bills for a total CinC of $21.00, each dollar bill is no longer worth 1 dollar, and the cent is no longer worth 1 cent. The underlying market value of our products did not change. We still produce the same number of eggs and servings of bacon. We now are simply arbitrarily dividing the value of all the bacon and eggs produced by a larger number of dollar bills and coins.
So after the addition of the $7.00 worth of new dollars and coins, the value of a single dollar is now $0.67, and 1 cent is actually worth 67/1000 of a cent. So, now, one egg or one serving of bacon costs $1.49. So, A package of bacon or eggs is now $10.43. We lost approximately 33 cents in buying power for every dollar. Neither the egg nor the serving of bacon increased in real production value. The dollar decreased in the number of products it could buy because we divided the actual production value into twenty-one increments, not fourteen.
We can fool ourselves and say now we make $542.36, a raise of $178.36 more each year, but in reality, we have not gained any additional purchasing power! We can say our eggs are worth more, and our work is worth more. But, if we think about it, we will understand it is really not worth anything more than before. More eggs or bacon have not been created to increase the value. The new dollars came from no increase in production or value. We are putting more money in our pockets, we are earning more money, we have a higher net worth, but we can’t buy one more thing than we could before. It’s a shell game.
Maybe now we should be glad it is only the two of us in this world and only have two products we can buy or sell. We do not have taxes and interest. Takes and interest are pure expenses; they do not derive from any created value. They take money out of the system to put back into the system for the sake of supporting the system. If we had to pay taxes or interest, we might be earning more at the end of the year, but we would be able to purchase less and less. Now, If we printed more money to pay the taxes and interest, then the dollar would reduce again in value, our earnings would rise, our eggs and bacon would bring more dollars of lesser value, and we would be earning even less than before. Is this starting to feel a little bit real to you!
Summary
Our current inflation is largely caused by the latest rounds of so-called Stimulus Payments directly from the Federal Government and Quantitative Easing being injected into the economy directly by the Federal Reserve Bank. This will be discussed in the next article in the series, Quantitative Easing – Genius Deception.
You can download the Excel spreadsheet analysis for free. Click here!
