Listening to the media, the political pundits, and the majority of mainstream economists, you would have the impression that America is facing a severe deflation just around the corner.
In fact, what we face is the serious danger of rising prices due to a massive monetary expansion by the Federal Reserve.
I discuss this in a new article of mine, “False Deflationary Fears in Dangerous Inflationary Waters.”
The media and those mainstream economists are in a panic because the Consumer Price Index (CPI) declined by 0.7 percent in the month of December. And for the entire calender year of 2008, the CPI “only” increased by 0.1 percent.
Of course, falling or rising prices in general are not “deflation” or “inflation.” Such price movements are the effect of a preceding causal factor: changes in the quantity of money and credit. It is these underlying monetary changes that are “inflationary” or deflationary.”
Once we understand this, things are seen to be completely different. Between September and December of 2008, the Federal Reserve increased the Monetary Base by 95 percent. And at an annualized rate over period, M-1 has gone up by 40 percent and M-2 has grown by nearly 17.5 percent.
The Fed has created a tidal wave of monetary expansion. And if they were not to radically reverse the growth in the money supply they have created, signficantly rising prices will be facing the American consuming and taxpaying public the months and years to come.
There is a reason by economists like the French free marketeer, Jacque Rueff, long ago called our times the “age of inflation.”