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The Reason the Rich are Getting Richer is Because Inflation Pushes Money Up and Inflation is Accelerating: Part 2

By: Curtis Ophoven

9/21/2009 - 46 Comments

This article is a continuation of the topic that I started last week with a look at why the rich are getting richer.

Here is part 1. There are two primary reasons for this result and both of them are not in the governments’ best interest. 

In short, the government benefits at the expense of the poor getting poorer and therefore the politicians would have to act against their best interest in order to help, and very few ever do.

There are two primary reasons for this result;

1 – Lack of Financial Education

When more credit is made available or money is given to the poor without also giving them the education to manage it, their lack of financial education does not allow them to uses the money wisely, by saving or investing. 

Sometimes this is used to argue against capitalism, showing that the free market does not result in the purchasing of the most productive products.  But I refute this argument because capitalism is not ment to be an educational system but an economic system, yet it does educate by way of profit and losses for financial decisions if allowed to. It is the government who intervenes to stop this educational process from taking place by bailout out failed companies. 

The result of the poor getting poorer, while being handed money, is a clear indication that the public does not have a sound financial education.  Instead of saving and investing, the poor spend the money they are handed as fast as they get it.   

The financial education of the middle class has also been declining; in fact this is the primary reason that Robert Kiyosaki and Donald Trump blame for the economic crisis in their book “Why We Want You Be to Rich” and the motivation behind Roberts’ book “Increase your Financial IQ”.  These guys realize that without a strong financial education, the public cannot make good financial decisions to save and invest. 

The rich need the poor and middle class to save their money so that the banks have money to lend to the rich to grow their businesses, and so they can pay their bills. Without a strong middle class, Robert and Donald cannot grow their businesses. 

They need a middle class that is making good decisions with their money, but the government policies that are redistributing money are working against their capitalistic efforts and causing the poor and middle class to get poorer.  Everyone gets poorer when capitalism is not allowed to function as with the current financial system we have today in which the governments hands are all over.

2 – Inflation Pushes Money Up

Despite a decreasing financial education, Inflation is perhaps the largest contributor to the economic problems that enslave the poor. 

As slick politicians increase the handouts to the needy by making credit more accessible, they also give big businesses more leverage.  The needy use the easy credit to purchase things like car and houses with long term payments that tie up their future earnings for 5-10-30 years – and everyone cheers.  But at the same time, big businesses take advantage of the easy credit to purchase smaller companies and increase their risks.

When money is cheap, big businesses borrow billions of dollars to purchase companies that have predictable revenues.  Predictable revenues come from long term consumer contracts, based on a history of consumer demand or commitments.  So the companies that have hooked the consumers into long term payments that have tied up their future earnings become the growth engine for big businesses. 

You see, it is impossible for a government to help the poor and middle class by making credit more available – yet that is exactly what the government has been doing for decades.

Moral Hazard

Inflation is defined as the increase in the currency supply, which is the result of increasing consumer credit.  Therefore, inflation causes the poor to commit more of their income to long term debt, while encouraging big businesses to grow in size and power.  

The larger a business gets the more political influence it gains and that influence gives them even more leverage to take bigger risks with the government backing them up and the taxpayer stuck with the bill if they fail.

This is sometimes called the “moral hazard” of government central planning.  Easy credit is not the answer to economic prosperity.  It is better to leave the availability of credit at whatever the free market sets it.  When the government interferes with the credit market, by making credit more assessable or by lowering interest rates, they are causing this “moral hazard” to take place.

Increasing Prices

Inflation also takes more wealth away from the poor then the rich because the results of inflation cause prices to increase, which the poor have a harder time protecting against.

When the increase in money supply causes prices to increase, which it always does eventually, the poor and middle-class that live paycheck to paycheck cannot protect themselves by investing in stronger currencies or precious metals or foreign investments.  They are trapped in the currency used by the inflating government.  

The poor and middle-class are without a question getting poorer and inflation is the primary reason.  The government has soo many benefits to creating inflation that it cannot resist the temptation to continue its inflationary policies – at the expense of the people.  This story has been played out in history again and again and now it looks like the U.S. is on the path to hyperinflation

Conclusion

Michael Moore doesn’t recognize that the current government policies are actually causing the money to pool at the top.  If he did he would realize that we need to stop government central planning to allow capitalism to function properly in order for capitalism to result in prosperity. 

Less government redistribution of money would propel millions to build successful businesses and create wealth. The middle class would grow, while the poor and rich classes would shrink.

The alternative that Michael suggests to get rid of capitalism would result is even more money pooling at the top and more government control and corruption.  The world already has a nation like that, it’s called Russia.

Also, here is another article about inflation. What is the Likelihood of Hyperinflation in 2010, 2011 or 2012? Part 1: Why is Inflation So Hard to Stop and So Easy to Start?


 

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.

Carnival of Money Hackers

81st Carnival of Money Hacks

Carnival of Personal Finance; Live from Monticello 

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How Capitalism Saved America

This book is an excellent presentation on the problems of government 'regulations' into free market mechanisms. This book illustrates simply and clearly how many chaotic economic problems were caused by interference from government regulations and how capitalism has overcome them. Master this book and you have overcome most of the bad economic thinking of our time. Government is the cause of capitalism failure.

Crash Proof

Peter Schiff has predicted the economic hardship more accurately then any other economist in the world in this book. Everything from the housing crash to the credit crunch to the stock market. Peter has a plan to help you servive the crash. Peter explains why the Wall Street investment firms are still trying to sell you stocks, and was the house prices are likely to continue to decline for years to come.

Your Money or Your Life

There's a big difference between "making a living" and making a life. Do you spend more than you earn? Does making a living feel more like making a dying? Do you dislike your job but can't afford to leave it? Is money fragmenting your time, your relationships with family and friends? If so, Your Money or Your Life is for you. From this inspiring book, learn how to, get out of debt and develop savings, reorder material priorities and live well for less, resolve inner conflicts between values and lifestyles, convert problems into opportunities to learn new skill, attain a wholeness of livelihood and lifestyle, and much more.

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse

In discussions of today's economic meltdown and what to do about it, the Federal Reserve is a stealth helicopter: it never shows up on the radar. With the exception of a few esoteric specialists and those Ron Paul Revolutionaries who burst into chants of "Abolish the Fed!" Historian Thomas Woods notes in this important book, the Federal Reserve bears a large part of the blame for the mess we're in. In the first part of "Meltdown," Woods shows how both in theory and in practice, Fed policy fueled an artificial boom and is now leading us to a much larger meltdown.