Since the feds can’t grow their way out of debt…they’ll have to try to inflate their way out.
Trouble is, first…central bankers don’t have that good a grasp of inflation. They can control the amount of money in the monetary base at the Fed. But they don’t really control what happens to it next. For a long time, prices don’t necessarily react…because, in a depression, the velocity of money slows down to a crawl. The banks don’t lend; the money doesn’t get around…and it doesn’t feed into consumer prices. Then, all of a sudden, people realize that there dollars are losing value…suddenly, they are eager to send them on their way. Velocity increases – fast. It is as if they had put cash in a particle accelerator. Instead of 6% inflation, the CPI goes to 12%…or 25%…or 100%.
Investing in Gold: Protection from Runaway Inflation
Since the feds can’t grow their way out of debt…they’ll have to try to inflate their way out.
Trouble is, first…central bankers don’t have that good a grasp of inflation. They can control the amount of money in the monetary base at the Fed. But they don’t really control what happens to it next. For a long time, prices don’t necessarily react…because, in a depression, the velocity of money slows down to a crawl. The banks don’t lend; the money doesn’t get around…and it doesn’t feed into consumer prices. Then, all of a sudden, people realize that there dollars are losing value…suddenly, they are eager to send them on their way. Velocity increases – fast. It is as if they had put cash in a particle accelerator. Instead of 6% inflation, the CPI goes to 12%…or 25%…or 100%.
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