Thursday, October 24, 2013

Inflation Isn't Here Yet, BUT...

Inflation isn't here yet, but it's coming.

The government of the United States is creating money, inflating the money supply in various and complex ways, in order to pay for its deficit spending. Yet, price inflation has not been great, up to now. Why?

Normally, when the money supply is inflated, prices and wages go up. Money becomes worth less than before because there is more of it, so prices increase as people are willing to spend more dollars because they have more to spend.

But there is another factor involved. It is not just how much money exists that counts, but also the speed of the money, how fast it trades hands and moves through the economy, that can cause price inflation.

If the government printed a million dollars for every person and gave a million dollars in printed currency to every person in the United States, prices would go through the roof as people spend the money, competing for a limited supply of goods. But suppose everyone put their million dollars in shoe boxes under their beds and did not change their spending habits. If no one increased his or her spending, the extra printed money would have no effect on prices.

It is the increased spending of money that increases prices as much as the increased supply of money. And people are not spending, not in proportion to the increase in money.

There is also increased capacity to produce goods and services that helps to keep prices from increasing.

People are worried about the future and are, to some degree, holding back their spending, preferring to save money for their future and for emergencies. That may be one reason interest banks pay on savings accounts is so low. They do not have to pay high interest to attract savings.

Many young people do not expect social security to be around by the time they reach retirement age.

There is a mood and sense in this country that we are in trouble. It is deep-seated and goes beyond each person's estimation of his own personal circumstances.

People are not totally blind to what is happening. They are blind spiritually. They are blind to the true spiritual causes of what is happening. They are carnally minded and do not believe, understand, or submit to God's word and law. They do not know what Bible prophecy says is coming upon the United States.

But everyone is not blind to physical cause and effect. A large segment of the population knows, consciously or subconsciously, that the government is spending itself into bankruptcy and that the consequences will be disastrous if this trend continues. And that sense of impending doom makes people nervous, not willing to spend as before.

So people are postponing purchases to a degree they have not done before.

But this cannot last indefinitely. At some point, people will start spending more of the money they have saved. At some point, price inflation will kick in. When that happens, there will likely be no stopping it. As prices go up, people will be motivated to buy now before prices go up even more, and that will increase the rate of inflation even more.

And the increase in the money supply that has already occurred will make it impossible to rein in that inflation once it starts.

This is the calm before the storm. How long it will last, I do not know.

When high inflation kicks in, the dollar will likely begin to collapse and no longer be the primary world reserve and trading currency as it is now. It will be replaced with something else, probably the euro or some German backed and controlled European currency.

When that happens, the prices of every internationally traded commodity and type of goods will become more expensive for Americans. That includes food, gasoline, automobiles, computers, various manufactured goods, whether produced in the United States or not. Not just more expensive in dollar amounts, but more expensive in relation to wages. Wages for Americans will go up with inflation, but prices of food, fuel, and internationally traded manufactured goods will go up faster. Your hourly wage may double from $14 an hour to $28 an hour, but gasoline will triple from $4 a gallon to $12 a gallon. We will be working as hard, and maybe longer hours, but our incomes will not keep pace with living expenses. We will experience a lower standard of living.

This will also affect our ability to afford to maintain a strong military, and that will weaken us and make us vulnerable to attack from foreign enemies.

The fundamental causes of this mess are spiritual. Our wickedness as a nation and people is increasing, as God said it would (2 Timothy 3:1-5, 13), and God is taking from us capable leaders who could lead us out of this situation so we could avoid disaster (Isaiah 3:1-5). Instead, God is going to let us fall victim to our own foolishness (Jeremiah 2:19). God is going to let Satan weaken us and eventually devastate our nation in the great tribulation as punishment for our sins. This is not because God hates us but because He loves us and wants to bring us to repentance for our good. Then after Christ returns, we will be re-gathered from captivity and blessed as never before.

This is the calm before the storm.


John from Australia said...

Reading this post I came away with the impression that you are too influenced by conventional wisdom. I would suggest that reading Martin Armstrong’s blog ( would provide a better perspective.

BTW, I disagree with your high inflation scenario. said...

Thank you, John, for the link.

I would have posted this reply earlier, but when I read your comment I only had time to approve it, but not time to reply.

The website you link to looks interesting and informative, and I plan to study it further.

But in the meantime, maybe you can clear things up for me briefly. If you are right, that high inflation is not coming, then obviously I am missing something, but I do not know what it is. Educate me. Follow my logic and tell me what I am missing:

1. The government is spending massive amounts of money more than it is collecting in taxes.

2. Because the government is spending more money than it collects in taxes, it must make more money to cover the difference. There are various and complex ways the government can create new money, not just by printing, and there are various kinds of "money" the government can create (M1, M2, etc., most of which go over my head), but the bottom line is, it has to create money to spend that which it does not collect in taxes.

3. Since large amounts of money are being created, each dollar is worth relatively less than before, because there are more dollars around. As more dollars chase and compete for the same goods, price of goods will go up. The example of Germany prior to World War II is an example of what happens when governments manufacture too much money.

4. If price inflation is not occurring, it is because people are not yet freely spending the money that has been created. But once that starts to happen, inflation will take off and the government will not be able to stop it by "unmaking" the money it has already made.

I want to study the material you sent me in an email and the website you link to, but in the meantime maybe you can comment here and tell me in simple terms a non-economist like me can understand what I am missing. Where do I go wrong in my logic?