The Biden “administration” has done everything it could in 19 months to destroy the trajectory of the U. S. economy, and, possibly, U. S. permanence.  Above all, everyone is either helped or hurt by the big “bugaboo,” inflation.  Economists, pundits, commenters and news-readers galore, all have wise-sounding opinions, yet no one seems to know what inflation IS!

It seems Prudent to assume that some of them do, but the average person listening to any such is not going to find it out.  To a mouth, all say in so many, many words, that “inflation” is prices increasing.  Well, no it isn’t.  Inflation is inflation of the money “supply.”  And that isn’t even accurate; it’s inflation of available cash OR CAPITAL that is “liquid,” or lendable.  Capitalism and “inflation” go hand-in-hand to create prosperity for most people.

“Wait just a minute,” you’re thinking, “Inflation makes prices go up, and that’s bad, so it’s not helping MY prosperity.”  Actually, it has helped it – look at the riches and bounty we enjoy.  It’s a two-edged sword… like fire.  It can cook our food, keep us warm, run our engines or… burn the house down.  The key is keeping inflation where it runs the engine without burning down the house.  So, where does this wonderful inflation come from?

The simple answer is debt.  Our economy – even your personal economy – operates on a “futures” basis.  If you own your home you probably have a mortgage on it, which is a long-term debt, well into the future.  One of the quirks in our economy is that banks can legally loan out more “money” than they actually have on deposit.  It’s called “fractional reserve,” and it is about 14%.  In other words, among all the stored “savings” deposits and “performing loans” and temporary deposits, the “Bank” has an average number of dollars “in reserve,” at any given time.  If it amounts to a million dollars, our laws allow the bank to lend out up to $7 Million, round numbers, of which 6/7ths is, fundamentally, air.  So long as the honesty and ability to repay of most borrowers are intact, this is a safe system and the recipient of the check for the house you bought, accepts the dollars that were created to write it, as well as if he saw them peeled from a big fat roll of $100-dollar bills.

If the seller of the house also dealt with the same bank, his or her new deposit of, say, $400 thousand will, for a while, increase the average “reserve” the bank can lend seven times as much of.

Anyway, you commit to paying your mortgage for 20 or 30 years because the pain of losing your home is worse than the pain of making the payments.  Besides, you have a job, you’re productive, you’re helping to create profits somewhere – productive surplus, if you will.  It is reasonable that you will keep your promise to pay.  You have made your work valuable enough to produce some “productive surplus” for your own family.

Try to imagine where the construction industry and millions of jobs would be if there were no such thing as mortgages or construction loans.  But, if you’re worried about inflation, look at what you just did: you caused the inflation of the money supply by about $340,000!  Depending on the “velocity” of that money (through the economy), possibly even more than that.  But!  It’s OK.  You’re going to pay it down – or “back” – to the bank.  Owning that house will cause you to buy a bunch of other stuff that increases production (let’s hope, inside the U. S.), as well as future repairs and upgrades, and it will enable you to raise your children to become productive, too.

Transactions like these happen thousands of times a day, whether for homes, or cars, or work vehicles, trailer trucks and on and on.  Every loan creates some inflation, but not more than the “economy” will absorb, or, we might say, not more than the economy needs.

In the process of economic activity, wages, sales and so forth, governments collect taxes.  That is, BECAUSE THERE IS PRODUCTIVE SURPLUS in our economic activity, “we” can afford to pay taxes for those services and public works that individuals cannot provide for themselves.  Among these are public school facilities, police departments, fire departments, all the bureaucrats who are there to help US, the military, highway and roadway constructions, sewage treatment, water works and sewers, themselves.  All that stuff is paid for from productive surplus.  If kept in a rough balance, it all works together amazingly well as more people become productive and relatively financially independent, and benefiting in safety and economy from our shared public works.

How does it get out of balance?  Put most simply, if the money supply grows with no commensurate increase in production or productivity.  Take the example we’ve experienced recently where governments, based on perceived, raw, political advantage, decree that the “minimum wage” shall be $15.00 per hour.  A kid stuck at the fry station in a McDonald’s, making French fries for as many customers as desire some, gets a sudden, say, 20% pay increase.  He or she cannot fry more potatoes than before the raise, there are only so many orders for fries in a given day.  The added pay does not enable the fry-kid to encourage more people to buy fries than they used to buy before the change in pay.  Do you think the individual cost of an order of fries is going up?  Of course.  Or, is it possible that customers might wait a little longer to get their fries – and their whole orders, when it’s busier?  Perhaps the restaurant owner can’t afford to put two kids at the fry station in busy periods, now that the pay has increased arbitrarily.  The customer pays – or suffers – for this arbitrary work rule.

So, French fries go up in price, but is that “inflation?”  Well, no, obviously.  It’s an imposed change to the “CGS,” or Cost of Goods Sold.  How would inflation cause the price of French fries to go up?

Suppose that in a certain marketplace: your town, for example, there are both a lot of disposable income – free cash, as it were – and a limited supply of frozen French fries.  Potatoes are neither grown nor processed locally; they are transported some distance to the restaurants that want them in your town.  People in your town are in the habit of ordering fries with their burgers and sub sandwiches and business in fries is brisk.

Because the supply of spendable cash has been inflated (increased), people who might have held off adding fries to their sandwich orders, have started to order them more frequently, yet the total volume of fries coming from the processors can’t increase for quite a while, as the extra cash in everyone’s pocket makes it possible to afford the fries in other towns, as well, and the price of fries appears to be a bargain where they used to be a bit of a luxury.

Restaurants are finding that they’re “selling out” of fries and seeing customers go to another restaurant that still has some.  The owners get on the phone to order more fries but there aren’t any extra to be had.  Very quickly busier restaurants will offer a premium price to the distributor to get an extra case of frozen fries every day.  Realizing the nature of the increased demand, the distributor makes a deal with a potato processor who guarantees additional frozen fries, but at a higher wholesale price, too.

Pretty soon, the French fry supply problem is solved and people in your town can obtain all the fries they want, although each order costs a little more.  Lo, and Behold!  Inflation of the money supply changed demand patterns in the French fry marketplace.  This example is too simple, but also real.  During the engineered Covid crisis, the federal government wrote checks to millions of people that it/they, the federal, state and municipal governments had thrown out of work… billions and billions of dollars’ worth, but they were from accounts that had no actual – although highly hoped-for-future – money in them!  The checks were written from AIR.  Worse, they were doled out without regard to increasing productivity or other economic growth.  No new crops were planted, tended or harvested; no new mines were opened and their valuable minerals retrieved; no new inventions were spurred causing new manufacturing to commence.  But people accepted the ‘air-checks’ and spent them like money.  The money supply increased by over a Trillion Dollars while the supply of goods to be purchased actually went DOWN!

Prices started to go up until states started to re-open their businesses and let people go back to work.  The economy was roaring back when Biden was shoveled into office.  He promptly signed another Trillion-dollar “Covid Relief” bill that was no longer needed, indeed it extended payments to not work, and inflation really started shooting up.  The money supply – more air, but who’s counting – was now completely untethered from productivity, production or quantities of goods for sale.  In addition, there was an even larger incentive to not work.  The Consumer Price Index (CPI) started to take off in a serious way.

Because of “petro-dollars,” a sweetheart deal we made with Saudi Arabia (and, therefore, OPEC) when Nixon closed the gold window in the early ‘70’s, our federal spenders have developed a habit of calling everything a “crisis.”  It doesn’t have to be a war, a disaster, a plague… just a problem – like getting re-elected.  And, since there is (almost always) a terrible crisis, they can justify borrowing to resolve it.  So, they spend about one-third or more, MORE than the real money tax receipts that the federal government collects each year.  That missing third or 40% or so must be borrowed, largely adding to the “national debt.”

Now, if the extra federal spending were creating real wealth, which is what real investment does, the loans would steadily be repaid by the productive surplus the investments made possible.  Another way of saying it is that the DEBT would be DESTROYED.  That’s a good cycle: ideas vetted, loans obtained, practices, processes or new resources are implemented or obtained,* and the new productive surplus can be applied, in part, to “retire” the loan while net societal – or National – wealth increases.  Living standards improve and the repaid capital (the loan) becomes available for other real investments.

This neat system collapses when non-productive or ANTI-productive effects of the loan (deficit spending, it’s called) are mandated by law.  Most commonly, it collapses because the government borrows money to PAY FOR CURRENT EXPENSES, like welfare, interest on older loans, increasing the numbers of people employed in non-productive pursuits, and so forth.  A good example of hiring more people to be non-productive is part of the recently passed “Prosperity Reduction Act,” or, as it is officially mis-labeled, “The Inflation Reduction Act.”  Inside of this dishonest legislation is a provision to hire 87,000 more IRS agents, who will harass and impoverish productive people (tax-payers they are called) with absolutely no increase in productive surplus for anyone.  Oh, there’ll be some fat paychecks, but the net wealth of our economy will decline. 

The extra payroll dollars (among others in the bill) will inflate the money supply, however, and prices will move upward again as more cash chases fewer goods.

There are $600+Billion other dollars in the “bill” that also don’t represent any new production, productivity or wealth… they just lower the value of all the dollars floating around or in your wallet and retirement accounts.  Thanks, Brandon.

*Where are new resources “obtained?”  Well, there are only so many sources of new wealth that can add to an economy and total wealth of a nation.  The first is agriculture.  The elements of a crop of wheat or corn or soybeans or potatoes, are relatively inexpensive.  We count on God to provide the soil, the rain and sunlight… even the seeds, although humans have figured out how to augment everything but sunlight, and how to till the soil and harvest the crops with automated machinery, which has reduced the cost of labor in food production, as well.  Barring weather disasters and political interference, agriculture creates new wealth with every crop-cycle.  Many inventions and new mechanizations have been developed in response to the need for better food production as population has grown.

Coincident with expanding agriculture are various forms of mining, whether for coal, metals, oil, gypsum, quartz and dozens of other riches the earth provides.  From them have come thousands… no, Millions of products and inventions and improvements to standards of living, not least of which are pharmaceuticals and computer chips.  Virtually every one of these bits of progress and improvement has required some “financing,” or, as better known, debt.  Little by little every step has also “inflated” the money supply, but in rough equivalence to the new economic activity each has spurred.  A lot of that activity has been in the form of “fixed” assets, like buildings, roads, bridges and so forth.  At their creation, “fixed” expenditures DEFLATE the money supply, while enabling long-term economic benefit for lots of other activities, comforts or safety.

Somebody is going to paint those buildings.  We’re still driving across bridges that were built by the Works Progress Administration in the 1930’s.

Some companies, banks, agencies, treasuries and individuals are benefitted very nicely by inflation, primarily the federal government.  They get to spend the money first.  Debts and other invoices the federal government owes are paid off with “cheaper” dollars.  Increased payrolls result in increased tax receipts.  Favored industries obtain contracts and payments to carry out policies incorporated in the inflationary legislation.  Millions of votes are purchased as loans are forgiven and exorbitant expenses incurred and paid off.  So, some benefit immediately and don’t begrudge deficit spending.  Others, tax-payers, not so much.

The actual net result is a reduction in both national and individual wealth for MOST people.  The few favored in the legislation get an artificial boost of income.  It’s all very unfair and sold to the American people as a universal “good.”  But, what does it have to do with “petro-dollars?”

Petro-dollars refers to our agreement with OPEC that oil would be traded only for dollars.  Every nation, basically, would need to always have some dollars on deposit – some even made the U. S. dollar a “reserve” currency – so that when they needed to buy oil they could.  If they sold oil, they accepted having billions of U. S. dollars on deposit.  Dollars could be exchanged for any other currency an “oil” nation needed to buy products from anyone.  Still, a global acceptance of dollars gave a golden “carte blanche” to ignorant congresspeople to borrow without any practical limit.  All they need is a “crisis.”

At the same time that President Biden has ruined relations with Saudi Arabia and the rest of OPEC, and attacked fossil-fuels in the United States, multiple countries like Russia, China, Brazil and Iran, are making moves to eliminate the dollar as the currency of trade in oil.  When they succeed – WHEN they succeed – countries will start dumping dollars.  They won’t have the impetus to buy stuff from the U. S. in order to use up the dollars they have had to hold.  Currency markets will turn upside down.

We will experience price increases that are unimaginable.  All the goods and goodies that we import now, will have to be paid for with more valuable currencies than U. S. dollars.  Exchange rates are going to punish the dollar when that day comes.  All the dollars that have been created in other countries and banks have been inflating the same “money supply” we talked about earlier.  Every dollar BILL is, in fact, a bill that must be paid with something valuable, not merely with more “Federal Reserve Notes.”  The mendacious debt that Congresses and administrations have racked up to the tune of almost $31 TRILLION, will complete its cycle of inflation, as well, while much of the trading world rejects payments in dollars, preferring gold, rubles, rials, or, most likely, yuan.  We have no concept of and no political ability to balance our books and bring the number of dollars floating around into alignment with some form of productive output from our economy.  Prices, for everything, will shoot up.

We can see the World Economic Forum, a group of self-selected control freaks by which real governments – including our own – are being influenced, is spreading the organic fertilizer of “nitrogen pollution,” since carbon-dioxide hasn’t scared enough people.  To limit “nitrogen” requires, in their view, reducing crop yields (by refraining from using chemical fertilizers) and going “organic.”  There is an agenda that is far removed from “climate” at work here.  What will we do when hyper-inflation is chasing reduced supplies of food around the world?  Or, when Chinese- and Bill Gates-owned land is held out from cultivation in our own country?  We need miss only ONE growing season to be faced with famine, which is very unpleasant, even here.

Looking at the effects of the “green” movement and the recent pandemic-inspired tyranny, and the so-called vaccines that resulted, the main effects, cumulatively, have been death and sterilization.  Sounds like population reduction, if one were being Prudent.  Lo, and behold!  Bill Gates and the people he hob-nobs with agree that there are too many people on Earth, by a factor of two-thirds or more!  Let’s “vaccinate” every person on the planet.  Inflation won’t be a problem, then.