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The Policies of Inflation and Hyperinflation

inflationIt seems that we spend an awful lot of time talking about inflation, and then it suddenly crosses our mind that there may be a number of readers who have only a vague understanding of the topic. If that is your case, sit up and pay attention because we’re off on a whiz bang trip through the land of inflation and hyperinflation. In general, the term “inflation” is used to denote a rise in the price for goods and services, brought about by a lessening in the purchasing power of currency. In the case of the United States, we’re talking about the beaten and bloodied dollar.

The government has a vested interest in keeping inflation in check and deflation out of the picture. Most economists and politicians say they prefer an inflation rate to be between 1% and 3%. It seems quite strange that the United States inflation rate has hovered between 1.6% and 3.3% every year since 1991. The dirty little secret is that it’s easy to make the inflation rate come out exactly how you want by leaving certain areas of the economy off the list of factors used in the calculation. The United States government does just that. You may or may not be aware that food and energy are excluded from the official federal inflation calculation. In case you haven’t noticed, food and energy prices have risen precipitously of late.

The actual inflation number probably hovers anywhere between 6% to 10% and maybe even higher, courtesy of an out-of-control printing press controlled by the Federal Reserve that sends trillions of new dollars out into the economy on a whim. That whim is the direct cause of the dollar’s devaluation. When you add more of anything to something already in the market, it makes all of them worth less.

An interesting historical note is that economies on silver and gold standards seldom experienced inflation rates over 2%. In today’s world, where every country has switched to a paper currency standard, such long term paltry inflation is a pipedream. In 1971, the United States severed its final ties to gold and dropped the pretense that there was enough gold under federal control to redeem for all the paper money in circulation. Since 1950, eighteen countries have experienced what is called hyperinflation, an inflation rate that exceeds 50% a month. In most cases, hyperinflation was a direct result of following economic policies like our leaders are doing today…

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