M3 Money Supply Chart, Inflation, Fiat Currency

People are running around trying to figure out why in the heck the price of everything from gas to food to electricity is going nuts.

Many, including some not so well educated financial analysts call this inflation.

The truth is, inflation is not the price of things increasing. When prices rise, this is merely the symptom of what true inflation is: adding more currency to the money supply.

This is not rocket science. When you have more of something, it is worth less. Therefore, if you add more dollars to the available supply of dollars, obviously each dollar is worth less. Preposterous you say? Well let me put it another way, if dollars were as common as rocks lying on the ground, how valuable would they be? Obviously they would not be worth much. Therefore one of the key requirements of any form of currency is that it remains somewhat scarce. So, when the Fed pumps billions of dollars into the economy to rescue our financial system, people cheer because the system goes on for another day.

What many do not realize, is that every time they do, it raises the costs of everything from bread to gasoline.

This of course causes devaluation of the dollar, and inflation, which are essentially the same thing. Devaluation means the dollar is worth less, and inflation means (to most people) that things cost more. It is not that the things we buy are actually worth more, its just that our dollars are worth less, so it takes more dollars to buy the same thing that less dollar bought in the past.

My dear reader I know you are a smart cookie, and you arent so dumb that you will actually fall for the governments reported statistics on inflation. Especially since they have chosen to change the way inflation is measured, by leaving out little things like the cost of food and energy.

The chart below shows the rate at which the Fed is continuing to add dollars to the available pool of currency. As you can see, it is approaching 20%, yet the government reports “core inflation” (a term that is applicable only to the aliens living on planet Washington, because they obviously dont shop for groceries where you and I do) at less than 4%.

Now we come back to my ‘forever rant’. Gold and silver are some of the only ways you can protect the value of your wealth given todays financial landscape. If you are storing it in dollars, I feel sorry for you because it is being devalued at a horrendous rate. If you are storing it in the stock market, again, I feel sorry for you, because it is only a matter of time before the baby boomers who put all their retirement money into the stock market, causing it to rise, start taking their money out to finance retirement, which will obviously cause it to fall. The question is, will you be the first, or the last to get your money out?

Gold on the other hand has retained its purchasing power for thousands of years. Did you know, that an ounce of gold would clothe a man in the finest clothing available thousands of years ago? Guess what, today, an ounce of gold will still, clothe a man in the finest clothing available. 75 years ago $20 would likewise buy you an entire wardrobe, yet what can you buy today with that same $20?

Got gold yet?

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