Wouldn’t life be different if the value of money didn’t change?  Prices of some grocery items would still fluctuate, depending upon whether they were in or out of season.  But still, inflation remains as a hidden tax imposed on the unwilling.

A particular deception regarding inflation is the celebration of rate reduction.  Just because inflation might slow down, its effects still accumulate.

Unlike money, gold does not change in value.  The amount of gold in human hands remains fairly constant.  There is only a trickle of it being mined as well as consumed by jewelers and dentists.  Looking at the price of gold expressed in U.S. dollars over the last ten years is rather interesting (see the chart here).

One can see in the chart that the price of gold was reasonably stable until the onset of both the COVID pandemic and the Biden administration.

A primary cause of inflation is the compulsion of politicians to cling to their offices by directing public funds to targeted constituencies.  Hence we have a plethora of expensive but useless projects — from California’s high-speed train to nowhere to spending $7.5 billion to build 37 E.V. charging stations.  That’s over $200 million per station.  Adding in the 226 ports (?), it still comes to over $28 million per charging unit.

What the government doesn’t print, it borrows — thus adding accrued interest to the cost of doing business.  Many on the right are declaring that interest being paid on the debt is now greater than what is spent to actually defend the nation.  Inflation, however, is a welcome bonus to debtors, since they get to pay back what they owe with money that has been made cheaper than it was at the origination of the obligation.  A historically extreme example of this was triggered by the Treaty of Versailles, when the reparations payments required of Germany were defined in marks rather than ounces of bullion.  The Weimar Republic’s printing presses began to work around the clock, and German money became so worthless that some folks actually burned it for heat, since coal was more expensive. This disruption ultimately led to the rise of Hitler and the Third Reich.

Other than a holocaustic war, what else can suppress inflation?  Conventional “wisdom” points to cranking up interest rates, assuming there is some all-powerful entity that has such ability.  This is supposed to work because higher rates cool down economic activity, putting less pressure on increasing the money supply.  This can also be called “causing a recession” and thus lowering the standard of living.  Ronald Reagan and Paul Volcker did this in 1981, and it worked.  Fortunately for Reagan, there was enough time left before the next election, so the real benefits had time to settle in and be broadly felt.  Reagan then won re-election in a historic landslide.

A particular misuse of inflation has to do with media announcements of retail sales statistics.  Adjusting for inflation is typically left out of the declaration and likely the underlying calculation.  Now that Mr. Trump is back in the White House, the stats may be made less optimistic as long as inflation continues.  To help see through this fog, there’s the online inflation calculator.

It may be important to understand the difference between money and wealth.  Today’s money is made out of paper.  Wealth, on the other hand, is the actual stuff that money buys.

I’m not advocating for gold as an investment, though many others are.  Although it’s much more complicated to transact, real estate is also a fairly good inflation hedge.  And nobody ever wants to rent gold.  Thus, real estate will likely provide you with cash flow in addition to protecting you from inflation.

Image via Pixabay.