Tricky Dollar Nixon

theCL  2009-08-20  Economic, Federal Reserve

On August 15, 1971, President Richard Nixon went on national television to announce significant changes being made in federal government economic policy.

  • abolition of the Bretton-Woods agreement
  • imposition of a price-wage freeze
  • creation of a 'temporary' tariff on all imports

Inflation has sky-rocketed ever since ...

Did you know for example, you need $55.76 after-taxes today, to buy what only cost $10 in 1970? Do you see what I mean? "You know it's hard out here for a pimp ... "

It's tough for a person to get ahead under these circumstances. Isn't it? Literally ... it's the system, working against you.

Here's Tricky Dick ...

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Economics Today:

John Maynard Keynes became famous after writing his first book, The Economic Consequences of the Peace. Since its publication in 1919, Keynes ideas have spread like a virus, all throughout academia and government.

Here's Keynes on inflation (emphasis added):

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Source: The Economic Consequences of the Peace, John Maynard Keynes, 1919.

The next article gives a terrific explanation of inflation. A short paper by Mises, is commonly referred to by the name "Inflation in One Page."

The Truth about Inflation by Ludwig von Mises

The government provides a part of the funds required for rearmament by inflation, that is, by increasing the quantity of money in circulation and the amount of bank balances subject to check.

The unavoidable consequence of inflation is the emergence of a general tendency of all prices to rise. If the government had procured all the money it needed for rearmament by taxing the citizens, the increased demand on its part would have been counteracted by a drop in the purchases of the taxpayers. The expanded military consumption would have been neutralized on the market by a restriction in civilian consumption. But with inflation the additional demand of the armed forces comes on top of the non-decreased demand of the public and makes prices soar.

What the bureaucrats have in mind when talking about "fighting" inflation is not avoiding inflation, but suppressing its inevitable consequences by price control. This is a hopeless venture. The attempt to fix prices at a lower rate than that which the unhampered market would determine renders unremunerative the business of some producers; that is, those operating at the highest costs. This forces them to discontinue production.

Inflation, in conjunction with price control, brings about scarcity....

Economists know very well that there is only one means "catch the thief." The government, which produced the inflation by multiplying the supply of money, available to prevent a further rise in all commodity prices, namely, to end inflation entirely.

If the government obtains all its funds from the public and stops increasing the quantity of money in circulation and borrowing from the commercial banks, prices will remain unchanged, by and large, and there will not be any need for the activities of a price dictator.

But the administration does not want to stop inflation. It does not want to endanger its popularity with the voters by collecting, through taxation, all it wants to spend. It prefers to mislead the people by resorting to the seemingly non-onerous method of increasing the supply of money and credit. Yet, whatever system of financing may be adopted, whether taxation, borrowing, or inflation, the full incidence of the government's expenditures must fall upon the public.

With inflation as well as with taxation, it is the citizens who must foot the total bill. The distinguishing mark of inflation, when considered as a method of filling the vaults of the Treasury, is that it distributes the burden in a most unfair way, overcharging those who are least able to bear it.

A Semantic Trick

To avoid being blamed for the nefarious consequences of inflation, the government and its henchmen resort to a semantic trick. They try to change the meaning of the terms. They call "inflation" the inevitable consequence of inflation, namely, the rise in prices. They are anxious to relegate into oblivion the fact that this rise is produced by an increase in the amount of money and money substitutes. They never mention this increase.

They put the responsibility for the rising cost of living on business. This is a classical case of the thief crying inflation by multiplying the supply of money, incriminates the manufacturers and merchants and glories in the role of being a champion of low prices. While the [the government] is busy annoying sellers as well as consumers by a flood of decrees and regulations, the only effect of which is scarcity, the Treasury [and the Fed] go on with inflation.

Use the calculator below, to see how much of your wealth inflation has eaten away.



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