Seeking Refuge from Financial Predators

In the ongoing debate about the inflationary practices of central banks, Henry Hazlitt’s assertion that the solution to inflation is simply to stop inflating resonates as a logical approach. However, the prevailing sentiment among many economists and politicians is diametrically opposed; they posit that a degree of inflation is not only beneficial but also essential for economic growth. This mindset is underpinned by a pervasive fear of deflation—a fall in prices—deemed more detrimental than inflation itself. The Federal Reserve, in its capacity as the government’s money-managing entity, actively engages in practices that lead to the devaluation of currency, with the intention of maintaining a consistent upward trajectory in prices. As a result, many individuals find themselves grappling with the consequences of deliberate monetary policy aimed at inflation rather than addressing the potential risks of deflation.

The consequences of such inflationary policies can be severe and far-reaching, leading to economic catastrophes in numerous countries throughout history. Instances of hyperinflation in Germany, Hungary, Zimbabwe, and Venezuela illustrate the devastating impacts this can have on the populace, where the purchasing power of everyday citizens erodes to an unimaginable degree. The aftermath of such monetary ruin often includes widespread social unrest, crime, and desperation, as reflected in the troubling experiences of those who have lived through these crises. The case of Venezuela is particularly stark, where inflation skyrocketed to an astonishing one million percent by 2018, fundamentally altering the fabric of society. In the wake of these events, it becomes clear that inflation is not merely an abstract economic concept but a harbinger of severe human suffering.

In contrast to the ongoing inflationary trends seen today, historical approaches to curbing inflation have often entailed drastic measures. A notable example is Federal Reserve Chairman Paul Volcker, who was appointed in 1979 and took decisive actions to address rising inflation rates, which peaked at 11.6 percent the following year. Volcker’s strategy involved halting the expansion of the money supply rather than using interest rate hikes as a first resort. This stark approach, while painful in the short term—evidenced by soaring mortgage rates and a difficult economic climate—ultimately proved effective in stabilizing the economy. It serves as a reminder of the difficult choices that must often be made to break the cycle of inflation and restore credibility to monetary policy.

The last few decades have seen a dramatic departure from the lessons learned during Volcker’s tenure, with monetary authorities repeatedly resorting to the inflationary practices that they once sought to eliminate. This has been particularly evident in the wake of the economic disruptions caused by the COVID-19 pandemic, during which the Federal Reserve expanded its balance sheet from $1.5 trillion to $7.3 trillion in a short span. The larger implications of this decision can be profound, as the reckless creation of money without corresponding economic output risks repeating the history of inflationary disasters. Historically, when monetary controls are ignored, as evidenced in the periods referenced by former Fed Chairman Alan Greenspan, the effects can linger for generations, impacting both individual livelihoods and the overall economic landscape.

Greenspan’s reflections on the historical context of U.S. monetary policy highlight a significant shift that has occurred since the abandonment of the gold standard. He notes that, while the gold standard may not have engendered a period of absolute price stability, it constrained the capacity for unchecked money creation, contrasting sharply with the rampant inflation observed post-1933. His observations suggest that inflation has primarily been a consequence of insufficient monetary discipline. By contrasting inflated prices today with those in historical periods under a gold standard, it becomes evident that the dollar’s purchasing power has been severely compromised due to policies that prioritized short-term economic expansion over long-term financial stability.

Notably, Ben Bernanke’s perspective on inflation reveals an intellectual divide regarding its causes and implications. As a central banker, he highlights various potential factors contributing to inflation, yet dismisses the notion that any single cause can be identified. This approach leans heavily on subjective interpretation, which could undermine the objective analysis of effective monetary policy. As the economy navigates the complexities of a post-pandemic world, questions arise about the sustainability of inflated prices and the eventual unraveling of the monetary system. The existence of alternative monetary systems, such as Bitcoin, reflects a growing dissatisfaction with traditional fiat currency and the risks that accompany it. Although cryptocurrencies present their own set of challenges, many view them as a viable alternative that could offer better long-term stability than the inflationary policies of central banks around the globe.

In summary, the intersection of inflationary practices, economic theory, and historical precedent reveals a complex landscape replete with challenges. While central banks, driven by fears of deflation, continue to prioritize inflationary measures, the repercussions of such decisions can be dire, leading to instability and societal unrest. Historical lessons, as demonstrated by figures like Paul Volcker and Alan Greenspan, emphasize the importance of exercising monetary discipline in promoting economic stability. As the world faces the trials of modern monetary policy, a growing number of individuals are exploring alternative means of safeguarding their wealth, thereby underscoring a critical examination of the value and efficacy of fiat money in an increasingly uncertain economic environment. The tension between inflation and deflation invites further exploration and discourse as society grapples with the legacy of monetary policy and its implications for the future.