Who hoo! Inflation is back

They are celebrating at the Fed. They have slayed the evil dragon called deflation, for now at least.

Deflation is a horrible thing for people in debt, because it quickly can increase the amount of debt that is felt...or to put it another way the dollars you owe suddenly are worth more.

We are debtors, both individually and as a nation. Our debt burden is high, although currently sustainable, it grew at a rapid pace last fall when the dollar began climbing against almost everything.

The Fed set out to kill this deflation, because it is bad for business.

They invented some money for the banks. Doesn't really exist, never did. If you really understand the banking industry, the banks were allowed to invent a bunch of money on paper (never printed) to replace a bunch of money they lost on paper which never really existed in the first place.

The government didn't give them money, they gave them permission to commit monetary fraud. Nothing being paid back ever, they called it a capital injection...funny.

They had the luxury to do so. With all of the money being burned up suddenly in the subprime meltdown, they could "print' a huge sum of money at once, and never have a tremendous effect through inflation because you're only printing what's suddenly been lost.

I think America lost their outrage against this giveaway when we remembered that we have no clue how a bank works, how the Fed works, how the system works. We are clueless, and we have too many people shouting confusing things in our ear each day that we just shrugged our shoulders and turned our attention back to other stuff. Do you believe that America would care about the bank bailout if they found out all that happened was just a little erase/rewrite allowed on the books of specific banks?

We did it again, America, we let our elected leaders play economic god. They decided which banks get their money back (or more) from a mess most of them created, when a bank that might not have created the mess goes under as a consequence. We let them do it.

So they are blowing party horns and popping the champagne, because the dollar in your pocket is worth less than it was a few months ago.

Here's betting that they'll slowly let inflation get out of control, to the point that everyone's starting to get worried, and then they'll pull the emergency brake on the economy (with severe and quick increases in interest rates) which will stop the inflation, and they'll hope they do it quick enough to keep the economic momentum going.

This is what they are planning. They want to slowly make your money be worth less and less, so fewer people are underwater on their mortgage, so we owe less money to China and Japan (and social security recipients). If they do it long enough, wages will start to increase, because it will cheapen the cost of labor for American business.

It will work, only because most people don't know what's going on under their nose. I have faith in this, because of how many times we have let them get away with it. Paul Volker was the Fed chief under Reagan, and he was the one to quickly and dramatically raise interest rates. It killed the inflation from the late 1970's. This same man, Volker, is the chief of Obama's Economic Recovery Advisory Board. Their job, is going to be to decide how much to inflate and when to stop.

Inflation is a hidden tax on all of us, and if we keep letting our leaders put more and more burden of this tax on our shoulders, they will eventually overload us and this world will collapse.

I mention that our current level of debt is sustainable, which is to say that the debt we've already written as a nation could be paid off eventually, if we suddenly decided to live within out means as a nation and stopped borrowing altogether.

Our debt burden as a nation is (rounding down a little, I believe) about 10 trillion dollars. Takes your breath away, but think of it a few ways.

Our debt - 10 trillion
Our population - 300 million

That leaves each of us owing 35 grand or so in debt, as our burden of being part of this nation, I suppose...or our negligence in electing whom we have...you pick.

35 grand, we could pay this off in a few years. I'm not saying we will, but it could be paid back. That is, if we quit borrowing.

The truly scary thing is not the current size of our debt, but the rate at which it is increasing. If we keep up at this pace, we are going to witness a complete economic failure, not only in the United States, but the world. A complete collapse, a shutdown.

Another way of looking at our debt, compare it to GDP, our country's "salary' in layman's terms.

National debt - 10 trillion
Payments on the national debt each year - 164 billion
US GDP - 14 trillion

Compare this to a family bringing in $140,000 per year having a total debt of $100,000 (including home, cars, everything) and having monthly payments (interest only) of $136 per month.

This isn't an unbearable burden, yet, but at the rate we're letting it grow, it will eventually be unbearable.