Professor Hegel and Deflation

professor hegal and deflation

  Professor Gregory Hegel elucidated a well accepted principle that has come to be known as the Hegelian Dialectic. To achieve a desired unpopular result or policy, one must first create or highlight a useful problem, along with appropriate public agitation against this problem. This is the thesis. Then a solution is proposed which fits well with the desired result. This is the antithesis. Finally this solution results in the very thing it was intended to accomplish, or the synthesis.

 Why the mass psychology lesson in a piece about money? Well that is exactly the process I see being deployed in recent news reports about the state of the U.S economy. Inflation, as any World of Money student will tell you, is an increase in the broad money supply. This abundance of money causes consumer prices to rise relative to the amount of the increase. Thus a rise in the total supply of money from 7 to 7.7 trillion would be an approximate 10% rate of Inflation. The resultant high prices make Inflation an unpopular event.

How could anyone be for Inflation? Well, with the good professor's help, we are witnessing a clamor for Inflation. The unpopular Inflation is being held up as the champion necessary to combat that evil foe, Deflation. Deflation using the same definition, is a decrease in the broad money supply. If that $7 trillion money supply were to shrink to 6.3 trillion, that would be approximately 10% Deflation. By looking at the money supply figures on the left, one can see that Deflation is not a problem. In fact, one would be hard pressed to find a time when the money supply was actually shrinking: the clinical definition of Deflation.

{quotes align=right}So why all the talk about the dangers of Deflation? It causes the general public to raise a clamor for Inflation.{/quotes} I have seen news reports as I am sure you have, decrying the evils of Deflation and why it's so bad. To combat Deflation, you need a healthy dose of Inflation. The outcry is heard throughout the land. Calls by Congressmen imploring Federal Reserve Chairman Alan Greenspan to lower interest rates and fight Deflation. The dangers of Deflation are trumpeted in myriad news accounts. Articles are written deploring the ills of Deflation. Professional talking heads on financial news networks figuratively and literally wring their hands in despair. What a problem. How disastrous.

What should we do? About the only thing that can save us is… Well we are getting ahead of ourselves. There still is the problem of those pesky educated consumers who know what Inflation is, so we have another example of words being misused to mislead. A new word is born: Reflation. Are they kidding? No, they are not. The prefix re suggests we have done it before flation. I for one, am not familiar with this word, but apparently the news anchors are. I have heard this word countless times, and in countless applications. Where did they all get the same word? Reflation. We need Reflation. Reflation can save the economy. Hell, even I am getting caught up in it all. Conducting debates and using the word as if it actually existed! Drag out the Webster's, folks. Don’t take my word, no pun intended. Look it up for yourself. Someone made this one up. Reflation is not a word. Inflation is the opposite of Deflation.

Trillions of dollars in hidden Inflation are stored in the Nation's Trust Funds. Former Treasury Secretary, Paul O'Neil, commissioned a study, which had him run out of town on a rail. It seems the Federal Government has an unfunded liability of 32 trillion dollars against a money supply of 8.5 trillion. That is not good. The only way to deal with this problem, the politicos have privately been told, is to allow the Fed to triple or even quadruple the money supply by 2015, when the Baby boomers start to retire. This will give us prices that are triple current levels, and a general loss of purchasing power. How will the people accept that?

 

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