The cheapening of the dollar or monetary inflation, takes place when there are more dollars in the economy than what people can earn by producing goods and providing services. This does not appear to make any sense, however it is probable since the government spends more money than it collects in taxes. The Federal Reserve "prints" more money to finance the deficits of the Congress. This extra cash flows into the economy as the government spends it, so it makes the dollars that were already there not quite as valuable as they had been.
The supply of dollars becomes greater in contrast to the demand for them, and so the dollar's value cascades in comparison to goods and services as a result, prices rise. American society has adjusted to this. After the severe price hikes of the 1970's, when the government broke off the dollar's link to gold and the nation suffered oil shortages, we are now seemingly accustomed to both high deficit spending and moderate inflation. We rely on gains in production and wages to more than offset the effects of inflation. Inflation is supposedly "under control. " But one cannot tell it by the prices of houses, of gasoline, of college tuition.
An individual could not tell it by the huge increase in consumer debt the average American carries, which indicates that wages do not keep pace with inflation. The goods found at discount and dollar stores, produced by cheap foreign labor, hide the obvious. While the government's "Consumer Price Index" of February 2006 suggests a twelve-month inflation rate of 3. 6%, the real measure of inflation is the number of dollars in the world. This measure, which the Federal Reserve calls M3, has risen 7. 9% over the same time period.
Meanwhile, the Gross Domestic Product – the nation's total value of goods and services grew just 3.2% in 2005 (http://www. lycos. com/info/inflation 08) The money supply is mounting two and a half times faster than the economy. The nation is consuming beyond more than it is producing. This has been known for a long time, but now it is reaching drastic and critical levels. Today, investors face many challenges when it comes to the maintenance of a well-diversified portfolio. In addition to extreme market instability and saving for retirement or tuition, investors have another apprehension to worry about, the Inflation. Inflation affects everyone.
It does not matter which social class an individual belongs to in or how much money they have in the bank – inflation can decimate their financial security because it erodes purchasing power and reduces what their money can buy. For all people, economy performance is very much important. People analyze the macro economy by basically looking at national output, unemployment and inflation. Although is the consumers who in due course determine the path of the economy, and that the governments also influence the economy’s performance through monetary and fiscal policy. The Congress should get to the heart of the matter.
The government's budget deficits are at the heart of this problem of inflation. It must cut government spending and balance the budget and only then will America avoid collapse. The Fed is aware that M3 is evidence to the world's bankers and investors that the American dollar supply is quickly increasing, and that consequently its value is decreasing. The Fed is troubled that foreign banks, who hold a giant chunk of America’s national debt, will want to dump their dollars. The Fed is also scared that oil-producing countries will similarly want to stop selling their stuff in dollars, and switch to the use of euro.
It has been decided to cover it up. Fed it will no longer publish M3. From now on, nobody will know how many more dollars the Fed will create. And this will certainly make a bad situation much worse. The Fed's refusal to tell the nation how many dollars there are is a sign that it is too troubled to admit how worthless the dollar really is. The world will desert the dollar, with devastating effects for Americans. Prices of goods and services will rise rapidly and radically, while wages will not even slightly keep pace.
The number of bankruptcies will blow up. America’s financial system will collapse. Merge this with military setbacks, the chaos on the Southern border, and Red State – Blue State animosity, the American’s could very well observe the decline and fall of the United States within a few years' time.
Page Lycos Retriever. "Inflation:Economies. " 2008. 14 Jan. 2008 <http://www. lycos. com/info/inflation–economies. html>. Heakal. Reem. “Macroeconimic Policies” 2008. 14 Jan. 2008 <http://www. investopedia. com/articles/02/120402. asp>.