Economists don’t usually talk in terms of right and wrong, honest and dishonest. For example, when they discuss inflation, it is purely in terms of consumer prices or the money supply. The money supply gets complicated, as there is M0 money supply, M1, M2, etc. You might think that only rocket scientists can really understand money.
These would-be monetary rocket scientists helpfully tell us everything they want us to believe. “The economy doing just fine,” they reassure us. “Consumer prices are increasing at 2.2%, but say, did you know that the stock market is booming? And the Fed is going to hike the Funds Rate past the flux capacitor to warp speed 9, so long as the midichlorians can reach the Hubble Constant in less than one light year!”
I’ll be polite and say, “rubbish.”
You don’t have to be a rocket scientist to see that many things are not fine, and that there is something dishonest going on. And, I don’t mean that the consumer price index understates inflation. I refer to something more serious.
We may think of inflation as rising consumer prices or increasing money supply. However, this definition overlooks something immoral and dishonest.
Let me explain. What we call money today is based on debt, mostly government debt. To oversimplify slightly, the dollar is a thin slice of the government’s debt. So the integrity of our money depends not just on the quantity of this debt, but most especially on its honesty.
The act of borrowing is a promise. The borrower says, “Give me money today, and in exchange I will give you some of my income in the future.” That is usually an honest promise, which is made in good faith.
For example, a business borrows to finance an increase in production, and hence profits. It repays the loan out of part of this new income. Borrowing to produce, by the way, is the engine that drives civilization forward. It helps entrepreneurs get rich, wage-earners save for retirement, and pensioners to live in retirement. Last but not least, it enables businesses to bring new products to market, improving the quality of life for everyone.
Unfortunately in some loans, the borrower has no means or intent to repay. One example is government borrowing, which does not increase production. It is purely consumption. The government spends more than their tax revenues, by going deeper into debt. And, there’s a flaw in their plan. Repayment will mean spending less than revenues in the future. The government promises to do something in 2018 or 2028 that it cannot do in 2017.
That’s a bogus promise.
At best, government can borrow more next year, to pay loans when due. Think of that guy who keeps getting cash advances from his new credit cards to pay his old cards. It’s financial juggling, with more and more saucers flying through the air.
One thing is for sure. It will all come crashing down. Those who lend to the government are not going to be repaid. If this were the full extent, we could step back and say that those who lent to the government are going to get what’s coming to them. There would be a certain poetic justice to this, if not justice justice.
It’s worse than that, because their debt is our money. The process of creating and issuing this bogus debt, this dishonest promise that will not be honored, is the root of inflation. Inflation is based on fraud.
We are all the victims, both financially and also morally. They are slowly corrupting and undermining what we call money. Our economy is poisoned through this counterfeiting of money.