The Riddle of Inflation: When Rising Prices Are Not Yet Inflation

We often hear in the news about a sharp rise in inflation when consumer prices increase, for example, by 0.6%. Such statements usually link inflation to the rising cost of gasoline, food, or even workers' demands for higher wages. However, this approach can lead away from a true understanding of what is happening.

Many mistakenly believe that a rise in prices itself constitutes inflation. When workers demand wage increases, it's called 'wage inflation.' Increases in rent or housing costs are also often misinterpreted as separate forms of inflation. But these phenomena are merely consequences, not inflation itself.

The True Definition of Inflation: Devaluation of Money

To understand this phenomenon, it is necessary to refer to a clear and unambiguous definition. Inflation is the devaluation of money, which occurs due to the actions of governments and central banks. It is they who inflate and thereby destroy their national currencies.

This devaluation manifests as a continuous increase in the supply of money and credit in the economy. The constant expansion of the money supply reduces the value of all money in circulation and leads to a loss of purchasing power. Price increases are already a consequence of this process.

Hidden Motives: Why Governments 'Inflate' the Money Supply

Governments resort to increasing the money supply to finance their large-scale spending programs. These expenditures, in turn, contribute to the expansion of state control and power over the economy.

For example, the Federal Reserve (Fed) ensures that the U.S. Treasury always receives the necessary amount for its needs. When demand for new Treasury bonds is insufficient, the Fed and its primary dealers buy up all unsold securities and hold them in their accounts.

Thus, the U.S. Treasury receives a deposit for the full amount of the issued bonds. Where does the Federal Reserve get these funds? It simply creates them, thereby initiating inflation through an increase in the money supply in the system.

The Main Source of Inflation: The Role of the Federal Reserve

In addition to financing the U.S. government's deficit, the Federal Reserve actively intervenes in financial markets. Its goal is to 'manage' the consequences of the inflation it itself creates. A significant portion of the funds that entered the system in response to crises related to the Great Recession of 2008-2010 was created by the Fed literally 'out of thin air'.

All of this was an expansion of money and credit. Today, the primary source of inflation is not so much the government itself, but rather the Federal Reserve, primarily due to the fractional reserve banking system.

The True Goals of the Fed: A Bank for Bankers

The Federal Reserve, founded in 1913 as a private institution by an act of Congress, is essentially a 'bank for bankers'. Its interests are not altruistic, but rather very specific.

The Fed's main goal is to provide an environment in which banks can create and lend money indefinitely, earning interest on it. The Fed's public statements about its goals, policies, and intentions often serve merely as a 'diversion'.

Therefore, one should not expect the Fed to take actions that would contradict its drive for self-preservation and the maintenance of its interest-earning system. While the Fed likely does not aim for the complete destruction of the dollar, its efforts to raise interest rates are more geared towards minimizing the consequences of the inflation it has already created.

It would be naive to believe that the Fed would completely stop creating money and credit if it genuinely wanted to end inflation. This would directly impact the interest income it 'earns' through monetary expansion and would trigger a deflationary collapse and a full-blown depression, which would complicate the collection of interest income and negatively affect the principal debt on loans.

Key Aspects of Inflation You Need to Know

• Governments and central banks create inflation for their own purposes: financing deficit spending and generating interest income.
• Rising prices are a result of declining purchasing power and a consequence of inflation.
• The consequences of inflation are unpredictable, as price increases do not correlate proportionally with the expansion of the money supply.
• The Federal Reserve System is a private institution, a 'bank for bankers,' and the primary source of inflation.

Long-Term Consequences: Loss of Purchasing Power

For over a century, the Federal Reserve System has deliberately created inflation, leading to the destruction of 99% of the U.S. dollar's purchasing power. Regardless of whether the Fed pauses or reverses its interest rate hike policy, this damage has already been done and will not be undone.

The central bank's actions also do not diminish the risks we may face in the future. Sooner or later, such policies will inevitably lead to catastrophic financial events and widespread economic devastation.