Current and pending economic policy in Washington DC leads to the conclusion that serious inflation may be just around the corner. 

About 40 years ago I started collecting postage stamps.  It was a great way to learn certain aspects of history and geography, while acquiring miniature art.  Some of the most intriguing items to my young mind were the stamps issued by the German Weimar Republic during the 1921-1923 period of hyperinflation.  In a time when US Postage was going for four or five cents, it was impossible for me to conceive of a situation where there would be a need for postage stamps denominated in the millions or billions of Marks, which Germany had found it necessary to issue.   For those doubters, an example of the German hyper-inflationary postage is shown above and an expanded version may be found here showing the progression from 5 Marks to 50 Billion Marks.  

Since I didn't collect paper money, I was spared seeing the currency printed at the time, denominated in like amounts, which I saw photos of later in life.  One book in my library shows a woman using the inflated German paper money to light her stove.  It was that valueless.

The cause of inflation within an economy is quite simple.  It occurs when there is a significant increase in the money supply without a equal increase in the amount of goods and services at the same time.  When the ratio between the amount of money and amount of things with real value changes, prices change.  The more prices rise, the more people will generally fear a continuing cycle of price increases so they demand more money to keep ahead of the expected increases, creating a self-fulfilling prophecy.  And just where does a government get the money which creates this phenomenon?  The answer is usually a matter of turning on the printing presses.  Today, with so much of banking carried out electronically, it may only be a matter of creating entries on computers, but either way, as the un-backed money spreads through the economy its value declines and prices rise. 

With Barack Obama suggesting that trillion dollar annual deficits are in the cards for the near future, there is the significant possibility that serious inflation may soon strike the American economy.  In combination with his misguided tax policies, and the anti-business and anti-productivity attitude emanating from Congress, it may well set the stage for a return of that disaster which appeared under Jimmy Carter; stagflation.  A situation where the prices rise while economic growth remains extremely low, or even goes negative.  This was supposed to be impossible according to former economic oracle, John Maynard Keynes, but Keynes was wrong.  It can happen because popular beliefs and the effects of government intervention can trump his general theory or distort it beyond workability. 

For years I've generally laughed at the commercials on the radio touting reasons to buy gold.  I don't any longer.  As one pitchman puts it, "we are not going to wake up to a headline reading government needs to bail out gold."  I have to agree with him.  Right now, hard assets might be the best investment buy because serious inflation may be just around the corner. 

Meanwhile, those who might expect that government "experts" would have learned from the Carter years, or from those under FDR when throwing money into the economy didn't remove the Great Depression, will be disappointed.  Experts generally don't learn.  They develop a theory and stick with it, regardless.  The "experts" who are recommending throwing money at the present economic slowdown have no understanding of the past, and presume to make the same mistakes others did because underneath all of their fancy degrees and credentials they really don't understand an economy all that well.  They think of it in terms of mathematical equations, when the unquantifiable matter of popular belief and expectations is what really rules the marketplace. 

The question we really must ask ourselves after the financial follies of the last several years now transition into a revised version featuring even greater levels of government intervention, spending and mismanagement, is whether or not the folks populating the White House and the halls of Congress are more interested in wrecking the economy or allowing it to work.  I would like to think the latter, but too much evidence exists to the contrary.  And, to top it off, it appears that Commander Susan Ivanova was right; I would appear that no one reads Santayana any more. Well, perhaps Thomas Sowell does, and he recently recommended that the best way to resolve the present economic situation is to do nothing.