Are we ready for the next government-created economic catastrophe?

Inflation and deflation are purely monetary phenomena. Inflation is not just a rise in prices, lots of things can drive prices higher. Inflation is the very specific case of a rise in general price levels driven by an increasing money supply. If the money in an economy grows at a faster rate than the pool of goods and services on which to spend it, general prices are bid higher as a result. Only money creates inflation.

Did you read that last sentence?

Simple economics 101…right?

Check this out:

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Say hello to the next phase in President Obama’s economic plan…hyperinflation.

The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run. Enactment of legal tender laws and price controls to prevent discounting the value of paper money relative to gold, silver, hard currency, or commodities, fails to force acceptance of a paper money which lacks intrinsic value. If the entity responsible for printing a currency promotes excessive money printing, with other factors contributing a reinforcing effect, hyperinflation usually continues. Often the body responsible for printing the currency cannot physically print paper currency faster than the rate at which it is devaluing, thus neutralizing their attempts to stimulate the economy.

CNN reporting today (1/30/2009):

NEW YORK — U.S. stocks sank Friday after a fresh economic body blow that U.S. President Barack Obama called “a disaster” for Americans hit the markets.

New economic data showed the U.S. economy shrank the most in 26 years in the last three months of 2008, with its Gross Domestic Product falling 3.8%.

So what do we have?

The money supply has nearly doubled in less than thirty days, while the GDP experienced the biggest drop in a quarter of a Century.

More money chasing less goods.

Hang on to your seats folks…soon. it’s going to feel like Mexico in 1982
around these parts.

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