We had a lot of fun yesterday. We held our first-ever "all hands" live video chat. Subscribers to all of our premium services were invited to join us to discuss an important topic... "What's up with inflation?" But before we can know how inflation is affecting prices and - most importantly - what to do about it, we need to define things a bit. For most investors, that's where the trouble starts... right at the beginning. Over the years, we've seen many definitions of inflation. Most folks agree that it's simply a general rise in prices. That gets close. But it's only halfway there. Quite often, things get more expensive without their price tags changing. In this case, we could define inflation as a general decline in purchasing power, wherein a unit of work - which remains constant - rewards the worker with fewer goods for his effort. We see it in the trades. Digging a ditch from here to there may have once earned a fella enough for a steak dinner. But now - due to an influx of cheaper labor and better technology - that same work will hardly buy him a cold-cut sandwich. "Essential" CostsBuilding on that idea, we can say that inflation is simply an increase in the general cost of living. We've consistently seen such an increase over the last 40 years. The prices of individual goods may not have risen all that fast after former Fed Chair Paul Volcker assumed power, but the number of things society now deems "essential" for a quality life has soared. Need proof? Look at how the nation spent its stimulus money. It's a great case study. Most folks used the free cash to pay their cellphone, internet and student loan bills - all relatively new expenses. An electric bill may not be a concept born within the last 40 years... but the microwave, the Keurig, the computer and the central air conditioning that our electricity now powers are. As these items have become more "essential" to our daily lives... our cost of living has risen. We must earn more to pay for it all. Looking at things this way surely does not fit within the classic definition of inflation. None of these ideas are included in the methods the government uses to determine its official inflation figures (which are a total joke). But our logic surely proves that prices are rising and the cost of living is surging. Throw in new taxes, new tolls and costly regulations (all that emissions and safety equipment in your car isn't free), and the future looks even more expensive. And while that's an eye-opening way of thinking about inflation for most folks... there's an even better way to look at it. All the King's MoneyYou've surely heard folks say the cause of inflation is too much money chasing too few goods. The idea is all over the place these days as the lazy headline writers try to put a nice little bow on rising prices. It's proof that even facts are seeing inflationary pressure these days. We're getting a whole lot fewer of them than we once did. In his 1963 book What Has Government Done to our Money (you can download a free copy here), economist Murray Rothbard pointed out what has really caused painful inflation over the years... government greed. Sure, "needing" a smartphone to get a job, paying for air conditioning and even shelling out cash for a toll road increases the cost of living, but it's quite fair to argue that each of these things is a net positive in our lives. In that case, inflation wouldn't be all that bad. But under Rothbard's definition... there's no arguing. He says inflation is the movement of real wealth from one person to another by means of an expanding money supply. And he's not just talking about the rich getting richer. From his book... More characteristically, the mint melted and recoined all the coins of the realm, giving the subjects back the same number of "pounds" or "marks," but of a lighter weight. The leftover ounces of gold or silver were pocketed by the King and used to pay his expenses. | | |
We don't have a king anymore. We're not paying the lavish living expenses of a single ruler as so many folks once did. But the story remains the same. Richard Nixon called back our gold in 1971. He said the dollar was no longer backed by it. Ever since, each new dollar printed has clipped the coins in our pocket that much more. Over the last year, Washington printed more than $4 trillion worth of new money. It's the equivalent of the king taking back all of our money and giving us lighter coins in return. The only difference... is the speed and ease with which it can be done. Washington used the proceeds, of course, to pay its own expenses. They took real wealth from your pocket and gave it to somebody else through the expansion of the money supply. The only thing better off for it... is the government. There is no better definition of inflation. We can watch the prices of lumber, used cars and everything else rise and fall with the headlines. But there's no doubt that because of what's happened and will continue to happen, each of us must earn more to simply stay where we're at. That's inflation. It hurts. And it will get worse. Be well, Andy Want more content like this? | | | |
Andy Snyder | FounderAndy Snyder is the founder of Manward Press, the nation's premier source of unfiltered, unorthodox views on money and what it means for a free society. An American author, investor and serial entrepreneur, Andy cut his teeth at an esteemed financial firm with nearly $100 billion in assets under management. He's been a keynote speaker and panelist at events all over the world, from four-star ballrooms to Senate hearing rooms. | | |
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