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New Economic Solution: Steal The Money From The People Through Inflation

By: Steve Johnson

4/26/2009 - 47 Comments

Last week Gregory Mankiw, professor of economics at Harvard, suggested the US cut interest rates below zero in order to create more inflation to spur the economy out of the recession.

This idea is as old as they get.  Time and time again governments have run out of money to the point where they try this strategy of using inflation to rob people of their money in order to satisfy their spending habits.

The rate that inflation is being created today in the US and around the world is unthinkable and the consequences  are yet to be realized.  Inflation is the increase in currency supply, which is later reflected in higher prices.  Causing more inflation on top of the wave of inflation that is coming would likely destroy all major paper currencies.

I expect a better idea from a Harvard economic professor.  This idea is like saying the cure to lung cancer is to increase the number of cigarettes that you smoke each day by 10x.

The last thing the US economy needs right now is more inflation.  Following Gregory Mankiw's advise will lead the economy to an inflationary depression.

Inflation is nothing more then legally stealing money from the people that are holding the currency.  Therefore the more currency that you are holding, the more the government will be able to steal from you. 

The US is in a unique position with 2/3’s of its currency in use outside the US.   Increasing the supply of dollars will rob the entire world of wealth. If the US government wants the world to support its massive budget deficit by borrowing trillions, while increasing the supply of dollars and therefore stealing the value of everyone holding dollars, they are not going to make any friends.

The world is not going to sit back and let the US borrow and spend money from foreign nations, while they wipe out their debts with massive inflation.  That sounds like the world’s largest ponzi scheme.

Inflation is one of the hardest economic conditions to live through because everything is uncertain.  Today, you know the value of your money and you know how much value you are getting paid from your job.  When you loose your job, you have to rely on other sources of income.  Loosing your job is like loosing a leg and it’s a lot harder to stand on one leg then two.

Inflation is like getting the rug pulled out from under you again and again or like standing on a treadmill.  Would you rather stand on one leg or stand on a treadmill?

The worst part of inflation is that it wipes out the savers and hurts everyone living on a fixed income.  This is exactly where the largest segment of the US population is headed as the baby boomers move into retirement, and many begin living on Social Security. 

The current economic situation that drove a Harvard economic professor to turn to inflation as the only solution is not a good sign. 

The truth is that the money is gone.  Over the last decade the US has borrowed and spent their next ten years of future income.  The government cannot go on spending money anymore.

Something has to give.  Inflation is not the answer. Just ask German how it worked for them.

 

This week I participated in several blog carnivals

They did an excellent job and as usual, there are tons of great articles. If you have the time, I highly suggest you skim through this week’s carnivals.

Learn The Basics of Investing - Edition #197 of Carnival of Personal Finance

Investing in Gold Carnival Volume 1

Festival of Frugality #170 - Frugal Living is Timeless

Learn The Basics of Investing - Edition #197 of Carnival of Personal Finance

Carnival of Personal Finance #200 - Edition of Mini Accomplishments

Welcome to the Carnival of Personal Finance

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