If you purchased an item for $20.00 in 1913, the same product would cost you $459.93 today. That represents a 2199.6% rate of inflation. Is the product worth more than two-thousand times its original value? Probably not…. because the worth of the product has not varied, but the value of the money used to acquire it has gone down. In other words….the (formerly) high prices for real estate and homes and nearly every other purchase in our market baskets are a result of our money becoming worth less…..and closer to becoming worthless. The decreasing value of our currency means that most people are constantly scurrying to earn enough so as not to lose too much ground.
Though conventional wisdom states that inflation or weakening currency is good for borrowers because they repay with cheaper dollars than those they borrowed, every other aspect of life for the typical individual buyer increases in price thus rendering the payback gains as negligible. Besides, borrowing money should be a thoughtful process that weighs the probability that the use and value of the product outperforms the capital cost and carrying charges. If one borrows money merely to benefit from a cheaper-dollar payback, the underlying reason for the initial purchase is probably of questionable value. The scrambling that is necessary just to outrun the inflationary cycle could consume more energy than the minimal gains that are realized.
The economic uncertainty that results from an accelerating inflation cycle lures investors and business owners into unwise decisions. If the “chickens come home to roost” the faulty decisions will be exposed, and various sectors of the economy could be negatively impacted. Inflated money demonstrates the unreality of a currency or coinage that is based on nothing. There are no precious deposits that insure the stability of the money, and there is no underlying basis for valuing it. The value of an inflationary currency must ALWAYS be relative to other currencies and their purchasing powers. As nations and their economies ebb and flow the relative positions of their monies will change based on the underlying strength of each nation. It is an unstable system that allows for nefarious manipulation (see Soros, George). A sound money supply must be backed by a stable valuable commodity in order to assure a predictable and consistent value for the money in good times and bad.
There is another factor regarding devalued money that is rarely addressed in the mainstream. A nation whose currency undergoes a long-term pattern of devaluation must be, to some degree, a nation in decline. Currency manipulation, purchasing decisions and business plans become hurried “under the gun” activities rather than thoughtful and systematic. Long range planning becomes difficult because of the unreliable nature of the money supply and value. Consequently, the short view takes precedence in the offices and boardrooms of the nation, and most gains are ephemeral. Living for the short term can be costly, and especially so for nations and businesses. One misstep….one miscalculation can have a devastating economic outcome. Long term vision allows for tweaking, nudging and redirecting the plan, but the short duration reactionary action plan is similar to rolling the dice for the big payoff…. or bust.
When our medium of exchange (money, gold, barter) is volatile, people become either overly cautious or dangerously risky. The uncertainty that follows a widely fluctuating currency undermines citizens’ confidence in their government, their economies and their futures. The impact on the national psyche could conceivably be more damaging than the harm that is done to the economic well-being of the nation. Imagine for a moment if you were a citizen in Greece. Greece….the birthplace of democracy ( a very limited version) is functioning like an economic bungee cord. The citizens have lost faith in the government and justifiably so. The Greeks, however, have been major contributors in their government’s fragility because of their vociferous resistance to necessary austerity measures. The angst arising from the failure of the Greek economy, the turmoil among the people and the fragility of the Euro have combined to create a nation that seems to have lost hope and expectations for a better future. Unfortunately the United States is traveling a similar path.
Our inflated dollars have distorted the true value of goods and services produced in the U.S.A. Our profligate spenders in governments at all levels have contributed to the inflation by over spending and over borrowing. Although our local governments are forbidden from running deficits, they are too eager to issue bonds for underwriting large chunks of spending…..especially capital expenditures. Debt is deadly whether it’s in the household the business or the statehouse. As debt increases and inflation takes hold, more funds are required to finance the continuation of the enterprise…..whether public or private. Thus begins the cycle for the issuance of more money. If our currency were based on a solid measurable standard, the excessive indebtedness in the public and private sectors would not be possible. Borrowers would have to compete for loans and stand in line to wait their turns. Our money, our economy and our sleep would all be more stable.
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