Inflation, Government Spending, and the Importance of Gold

This episode of Money Metals' Midweek Memo, hosted by Mike Maharrey, delves into the impact of government actions on the economy, the role of the Federal Reserve in inflation, and the strategic importance of investing in gold and silver.

Government Incompetence or Malevolence?

Maharrey begins by highlighting the inefficiencies and frustrations caused by government interventions, drawing parallels to everyday experiences like the DMV or navigating Medicare. He questions whether the government's missteps are due to sheer incompetence or malevolent intent, concluding that it's likely a mix of both.

Inflation: Intentional Policy and Incompetence

Maharrey emphasizes that inflation is a deliberate policy by the Federal Reserve and the government. He argues that their failure to control it is a sign of incompetence. According to Maharrey, the narrative that inflation is caused by external factors like supply chain issues or geopolitical events is a smokescreen. 

Maharrey cites economist Milton Friedman, who stated, "Inflation is always and everywhere a monetary phenomenon."

Why Inflate the Currency?

The government devalues its currency to finance its expanding size and power without triggering a revolt from the populace. Maharrey explains that all government spending ultimately comes from the citizens' pockets, either through taxes or borrowing. With the national debt nearing $34.6 trillion and unfunded liabilities for Social Security and Medicare amounting to $175.3 trillion, the government resorts to the "inflation tax" as a hidden way to fund its expenditures.

The Impact of Inflation on the Economy

Maharrey points out that inflation acts as a hidden tax, eroding the purchasing power of savings and wages. According to economist Daniel Lacalle, "The government's destruction of the purchasing power of the currency is a policy, not a coincidence." 

Lacalle goes on to write, "Inflation is a hidden transfer of wealth from deposit savers and real wages to the government. It is a disguised tax." 

This benefits the government and its cronies at the expense of the average citizen. 

Maharrey describes the current state of monetary policy as akin to throwing darts at a dartboard, criticizing the Federal Reserve's inconsistent and often inaccurate projections. 

Federal Reserve's Track Record

Maharrey, along with Fed watchdog David Hay, highlights the Federal Reserve's poor track record in predicting interest rates, noting that they only got it right 37% of the time. 

For example, in March 2021, the Fed projected that interest rates would remain at zero in 2022, but the actual rate was 1.75%. Such inconsistencies undermine confidence in the Fed's ability to manage monetary policy effectively.

Monetary Inflation vs. Price Inflation

Maharrey stresses the distinction between monetary inflation (an increase in the money supply) and price inflation (rising prices). While various factors can cause specific prices to rise, only an increase in the money supply causes a general rise in prices across the economy. He argues that the Fed's focus on controlling price inflation while ignoring the root cause—monetary inflation—is misguided.

The Value of Gold

Real money, such as gold, tells the story of government monetary malfeasance. Despite fluctuations, gold has risen 89% in the past five years, outperforming the S&P 500, which increased by 85%. 

Maharrey quotes economist Daniel Lacalle, who argues that gold remains exceedingly cheap given the ongoing devaluation of fiat currencies.

According to Lacalle, “Staying in cash is dangerous, accumulating government bonds is reckless, but rejecting gold is denying the reality of money."

Closing Summary

In this episode of Money Metals' Midweek Memo, host Mike Maharrey critiques the government's handling of the economy, particularly focusing on inflation as a deliberate policy by the Federal Reserve to devalue the currency and manage debt. He argues that while the government benefits from inflation, it erodes the purchasing power of citizens' savings and wages, acting as a hidden tax. 

Maharrey highlights the Federal Reserve's poor track record in predicting and controlling inflation, underscoring the need for individuals to protect their wealth through investments in gold and silver, which remain undervalued amidst ongoing monetary and fiscal mismanagement.

*********