Paul Mladjenovic
Let’s first break this question down into the two types of inflation; monetary inflation and price inflation. Price inflation is the general rise in prices of goods and services. This is the one everyone talks about. You here the complaint “Gee…how expensive “fill in the blank” has gotten!” It is important to point out that price inflation is not a problem; it is a symptom. This is a very crucial difference. If price inflation is a symptom, then what is the problem? The problem is monetary inflation. “Monetary inflation” is a fancy phrase meaning the creation (really “excessive” creation) of a particular currency. In our case, it is the excessive creation of dollars. Those dollars can be infused into the economy either through the actual printing (or electronic creation) of dollars or through credit ultimately issued by a central bank. In any case, monetary inflation is the cause of price inflation.
When you hear the Federal Reserve chairman, Ben Bernanke talking about “price inflation” and “keeping a close eye on what happens with rising prices” and how ”rising prices are inflationary” and so forth, it has to make a logical and discerning person scratch his/her head. It is much like a prolific arsonist wondering out loud about suspicious fires. Find out for yourself; here’s a research tip: Read (or listen to) Mr. Bernanke’s recent speeches. He will talk very much about price inflation but little (anything?) about monetary inflation. The last speech I heard, he made inflation almost sound like the weather as if it “just happened” and it was out there floating around in the atmosphere. At congressional hearings, you’ll even hear him say things like “the Fed will do everything it can to contain inflation”. At what point will those politicians just say “stop printing so much damn money and price inflation will come down!” It would be like the authorities saying to the arsonist “If you would just stop setting fires there would be less stuff burning down!” Get the picture? More
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