After all you can escape most of it if you buy gold or other commodities or assets. So when Ron Paul says that inflation wiped out the middle class, I don't think he is right. If inflation was really that bad people would simply stop using government currency, as it always happens when there is hyperinflation.
By the way I am not talking here about the low interest rates and the business cycle, which is a big problem of its own, but only about the weakening of the currency.
I'd like to note that you can't just stop using FRNs. You have to pay taxes in them.
And if someone offers them in a trade, they must be accepted (or else).
If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH
I dont think inflation is bad at all as long as it is maintained at a perpetual and an objective depreciation of 2.105% that can be applied to the aggregate money supply equally.
If inflation was really that bad people would simply stop using government currency, as it always happens when there is hyperinflation.
Have you thought this through?
Let's go step by step. You have, say, $10,000 of life savings. Inflation gets really bad, and people stop using govt currency. So you take your $10,000 and...
Fill in the blanks, and we'll continue.
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Smiling Dave: Let's go step by step. You have, say, $10,000 of life savings. Inflation gets really bad, and people stop using govt currency. So you take your $10,000 and...
Buy Bitcoin! ^_~
Eugene -> "If inflation was really that bad people would simply stop using government currency"
But they can't. Here's why :
Legal tender privileges do have a significant quantitative impact when they are given to false certificates. Above we have noticed that the mere legalization of false money certificates could not per se lead to large scale inflation as long as the market participants were free to abandon the use of the false certificates and switch to better ones, or demand payments in bullion. Even the introduction of monopoly privileges does not open the floodgates for inflation, because the monopoly does not impair the ability of the market participants to evaluate them as they see fit. Yet all these barriers to inflation collapse when false money certificates benefit from legal tender laws. [...] Before the institution of legal-tender laws, the Red Bank had operated on a 20 percent reserve ratio. Now the government makes its notes legal tender and thus artificially increases the demand for Red Bank notes; in other words, the owners of these notes redeem them less frequently. Suppose that as a consequence of the reduced demand for redemption, the cash reserves of the Red Bank increase by 2,000 ounces of gold. At the reserve ratio of 20 percent, this means that the Red Bank can issue additional banknotes for 10,000 ounces of gold. The operation of the market process is perverted. Whereas on a free market there is a tendency for the best available products to be used, legal tender laws combined with false certificates incite a race to the bottom. Since all money certificates are equal before the law, and because the legal-tender provision overrules private contract, no money user has an interest in paying the higher price for a genuine certificate. And as a consequence no producer has an interest in fabricating such certificates; each one of them now tries to operate at the lowest possible costs. Sooner or later everybody pays with debased coins and fractional-reserve notes. Bullion disappears altogether from public use; it is held back — ”hoarded” — or sold abroad. [...] It is true that fractional reserve banking protected by legal-tender laws is a race to the bottom. Every banker has an incentive to reduce his reserves — to inflate the quantity of his notes — as far as possible. But there is a logical stopping point before the total dissolution of monetary exchanges. Every single banker can stay in business only as long as he is able to redeem his notes. Because his customers have the right to demand redemption of his notes into bullion, and because some of them exercise this right, he must keep his note issues within more or less prudent narrow limits. [...]
Legal tender privileges for the banknotes of one bank do not prevent a race to the bottom, in the course of which each of the other banks attempts to reduce its reserves as far as possible. Assume for example that the pound bank reduces its reserves to 30 percent of its nominal issues. This in no way prevents the mark bank and the franc bank from reducing their reserves even further, say, to 20 percent. Quite to the contrary, there are very powerful incentives for the banks to do precisely that. We have noticed further that fractional-reserve banking systems labor under moral hazard. Each bank has an incentive to be especially reckless in diminishing its reserves (issuing further notes without coverage) because it can rely on the other banks as some sort of a safety net. This incentive is just as present if only one bank enjoys legal-tender privileges. All the other banks then have the tendency to use the notes of this bank, which all market participants are obliged to accept in lieu of specie, to cover their own note issues. Thus we see that, when legal tender privileges are accorded to just one bank, the cartelization and centralization of the banking industry crystallizes quite naturally around the privileged bank, thus turning it into the central bank. [...] Legal monopoly, as we defined it, diminishes the full use of one’s property. It deprives the citizens of options they would otherwise have had. It reduces the menu open for choice. However, it does not attack choice per se. The acting person is still free to choose among the remaining alternatives. By contrast, legal-tender privileges attack individual choice at its very root. They overrule any contractual agreement that a person might make in respect to money. The government imposes the use of some privileged money or money certificate. It coerces the citizens into using these means of payments, even though they might have other contractual obligations and contractual rights.
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That's not true.
And also, that people don't know to switch their moneys from dollar to gold.
“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence.""The sweetest of minds can harbor the harshest of men.”
http://voluntaryistreader.wordpress.org
Eugene:So when Ron Paul says that inflation wiped out the middle class, I don't think he is right. If inflation was really that bad people would simply stop using government currency, as it always happens when there is hyperinflation. By the way I am not talking here about the low interest rates and the business cycle, which is a big problem of its own, but only about the weakening of the currency.
The low interest rates, the weakening of the currency, and inflation transferring wealth from the masses to the elites are all manifestations of the same phenomenon: monopoly privilege (enforced by fiat) to create legal tender currency backed by absolutely nothing. The individuals and entities close to this money-well (politicians, bankers, crony capitalists of the warfare/welfare sort, etc) all benefit by having first dibs at the newly created money which they use to bid for real resources (goods and services) in the open market against the rest of society.
In addition, the entities close to the money-well are the first to learn about the various schemes, laws, programs, and regulations which would shovel the next wave of liquidity (new money) into particular segments of the economy thus are able to position themselves to profit from the inevitable rise in prices there. Then they dump those same assets to the late-coming public as the liquidity wave exhausts itself at the peak, and "liquidity" is being directed elsewhere.
These are the mechanisms of wealth transfer (plunder) that Ron Paul is referring to. Price inflation (aggregate rise in prices) is only a small part of the story. How, when, and which prices rise and who gets to enjoy lower prices before they rise is the much more important part that most people miss. Any entity with the absolute power to create legal tender from thin air must inevitably be corrupted absolutely.
"Give me control of a nations money and I don't care who writes the laws" -- Mayer Amschel Rotschild (1744 - 1812), From "The Creature From Jekyll Island" by Griffin.