Cycles of Inflation and Deflation: Money, Debt, and the 1990s

Cycles of Inflation and Deflation: Money, Debt, and the 1990s

Cycles of Inflation and Deflation: Money, Debt, and the 1990s

Cycles of Inflation and Deflation: Money, Debt, and the 1990s

Synopsis

This work examines the role money and debt play in our economy. It shows why we went from the gold standard to flat money, why that led to increasing inflation up to 1980, and why inflation has receded since 1980. In addition, it explains how today's economic problems arose, why governments cannot solve those problems, and where those problems will lead us. Challenging conventional wisdom, the author suggests that high real interest rates in the 1980s reduced business' ability to profit by expanding productive capacity and reduced the attractiveness of borrowing for consumption. The resulting drive to buy assets instead, such as stocks and real estate, caused rapidly rising prices in those areas. The author foresees a depression resulting from these economic forces--one which governments will be unable to prevent.

Excerpt

It ain't what you don't know that will hurt you -- it's what you know that ain't so.

-- Will Rogers

We have had inflation for over fifty years, but do you know what inflation is? It is more than rising prices. The New American Webster Handy College Dictionary does not even mention prices in defining inflation. It says inflation is too much money for the amount of goods produced. We have had rising prices for over fifty years because money supply has risen faster than output for over fifty years. Most of that money growth came from increasing debt.

The money supply began to rise faster than output in 1934, and prices began to rise. However, we need more than rising prices and money supply to have inflation. We have to believe money supply and prices will keep rising for a long time. In the later 1930s, people felt the depression would soon start again and did not borrow; World War II changed all that.

Debt has risen faster than output since 1941. Businesses making big profits from World War II began to borrow a great deal. They were first to see that high demand and prices would keep raising profits. Others began to borrow when prices kept rising after the war, but only after 1950 did most borrow freely with the belief that prices would keep rising for a long time. It took sixteen years and two wars to root inflation firmly.

As deflation is the reverse of inflation, it is more than falling prices. We do not call the 1920s a deflation, although prices fell. The New American Handy College Dictionary does not mention prices in defining deflation either. It says deflation is a fall in the volume and circulation of money. The only . . .

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