Many pundits blame oil price hikes after Russia’s invasion of Ukraine for the sharp increase in inflation. This chart shows the inflation rate climbing steadily for over a year. February’s year over year, annualized inflation rate was 7.9%. This was immediately blamed on Russia. However, the Russian invasion began on February 24th and no sanctions were implemented in the remaining 4 days of the month.
Friedman said inflation is always a monetary phenomenon – that is, central banks creating “money” out of thin air, thus devaluing the currency. Not everyone agrees with that assessment; however, since spring of 2020, the government has been in large scale deficit spending mode, dramatically increasing the size of the nation’s debts.
While this chart makes it look like Biden is the cause of the inflation, the start of this inflationary climb began in May of 2020. But visually, we intuitively line up the curves before and after the dip to make it look like Biden is the sole cause.
Remember, a 7.90% inflation rate means that in 12 months, each dollar you have in savings is worth -7.9% less (on average).
This also means that debts are worth -7.9% less. For this reason, some say that inflation is government’s way of stealth taxation to pay off debts. A debt that is worth -7.9% is cheaper to pay off, obviously. And if inflation remains high for several years, the cumulative effect is a significant drop in the real debt that needs to be paid off.
Thus, government’s fund themselves by “borrowing” money (created out of thin air and then sold as bonds), then deflate the value of money so they can pay off that debt with cheaper future dollars. Kind of sounds like a scam, doesn’t it?
