Byron Schlomach

Inflation days are here again

Posted on December 10, 2008 | Author: Byron Schlomach
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Al Gore made a big deal of the United Nations hockey stick graph of the earths temperature record in his movie An Inconvenient Truth. The hockey stick represented the apparent sudden upsurge in the earths temperature in recent decades. Riddled with errors, that graph has since been thoroughly debunked. But heres a real hockey stick graph that should make everybody nervous.graph

This is a graph of the nations supply of paper money and coins. A lot of the money circulates a minuscule portion of it is in my pocket right now. A whole lot of it sits in bank vaults and is the basis on which they make loans. The graph shows that the Federal Reserves printing presses must have been running triple shifts lately, because in only two months time, the supply of paper money increased by an unprecedented 76 percent.

Most of this cash went straight into bank vaults as part of the effort to shore up the nations financial sector. It takes awhile for banks to turn the cash around and loan it, but when they do, watch out. Just like everything else, when the supply of money increases, it becomes less valuable, meaning it takes more money to buy things. Thats inflation. Remember the 1970s when inflation was at double-digit rates? Well, that will pale compared to what we could experience over the next few years.

Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.

Learn more:

Economic Research: U.S. Financial Data

The Federal Reserve Board: Overview of the Federal Reserve System

InflationData: Inflation Cause and Effect

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