Cowboy Confessional

Economists define inflation as an expansion of the money supply. Print more money, put more money into circulation, that expands the stockpile of cash. We plebiscites experience inflation in terms of higher prices. Groceries cost more. Gasoline costs more. Medical care costs more. Inflation is like a tax without a tax collector who you can shoot when he comes around.

Given what Bush and Obama have wrought, prepare to double, triple, quadruple your household budget for years to come.

This graph (click to enlarge) comes courtesy of the Federal Reserve, the government’s bank and one that oddly is not audited like other banks. The chart shows our annual increase in the monetary base, an aggregate measure of the supply of American money. This particular picture shows the change in the monetary base from year to year. The combined affects of the Bush corporate bailout and the Obama spending spree are that vertical line on the right side (incidentally the gray areas are recessions, which make past monetary policy comparable).

When the money supply grows at the same rate as the economy (i.e., the Gross Domestic Product, or GDP) we experience no ill effects. Prices may rise but so do wages, dividends and other income sources. The net effect on your prosperity is static. However, when the money supply grows but the economy does not, we see staggeringly higher prices but not higher wages. Thus we all steadily starve. Pensioners – who all the baby boomers will very soon be – are hurt the worst for they are on fixed incomes and have no way to grow their prosperity.

The “Bush and Obama spike” – the combined effects of corporate bailouts and Obama’s explosive spending spree – have caused the rate of growth of the money supply to double overnight. With his spending schemes projecting far into the future and guaranteed for at least two years – until inflation forces voters to rethink their congressional preferences in 2010 – we will soon be selecting the cheaper cans of dog food to feed our children.

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