Inflation is an Unsustainable Lie

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Inflation is an Unsustainable Lie“I continue to believe that the American people have a love-hate relationship with inflation. They hate inflation but love everything that causes it.” -William E. Simon

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.” – Joseph Goebbels

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” – John Maynard Keynes

Inflation is an unsustainable lie. Of course, the veracity of this statement relies on the span of time to which the observer attributes “sustainability,” because it is a lie that has persisted for almost a century.

Based on the work of John Maynard Keynes and his disciples, the United States government wants the world to believe the only way an economy can grow is by creating moderate inflationary price increases —  through the use of monetary and tax policy. And the propaganda being employed to repaint this crisis in more attractive colors is as imperceptible as it is astonishing.

The word propaganda, in its current accepted usage, has been around for centuries. And just for the sake of thoroughness — and to avoid any misunderstandings — I’m going to define what I mean by current usage:

propaganda |ˌpräpəˈgandə| noun. information, ideas, or rumors deliberately spread widely to help or harm a person, group, movement, institution, nation, etc. ( Unabridged. Random House, Inc. 07 Nov. 2009.)

Many historians agree that Joseph Goebbels was the “master” propagandist, and after reading the quote at the beginning of this article, it should be reasonably clear he took his duty to his government seriously. But how hard was his job, really? The Nazis pointed guns at their audiences, and the audiences predictably agreed with what the Nazis said.

Goebbels was, of course, the antithesis of everything I hold dear and beautiful in this universe. But you have no choice but to take notice of a man who has the temerity to be so blatantly honest about the fact that he’s a liar. Granted, he did have brute force on his side, but I am still impressed by his gall.

In terms of human rights, I would like to think things are improving — that the world is a better place than it was through most, if not all of the 20th century. I would like to think the governed have become smarter. At the very least, I would like to think the average human being is more suspicious of, and cautious about his government. And maybe he is. But then again, maybe he’s not.

The application of propaganda obviously didn’t stop with Nazi Germany. It has been applied with great success by Joseph Stalin, Mao Zedong, Pol Pot, and many others — to hide all measures of truth from the people these leaders suppressed and murdered. Those of us who live in the west should be thankful… for our governments would never use propagandist techniques to persuade their populations of anything! We don’t work that way. Right?


Even if the average human being has become a little more sophisticated and leery, governments (and their co-conspirators) have simply upped the ante — taking propaganda to newer, subtler levels. In fact, the more I think about it, the more galvanized I become toward the tragic conclusion I used to start this article:

We are being lied to. And we still seem to believe every single word of it. But the most revolting part of all this is that — unlike some of the decent German citizens who were forced to endure the tyranny and coercion of the Nazi regime — we actually have a choice not to believe what has been fed to us. And yet we do believe it.

It’s not just governments anymore, either; it’s lobbyists, religious institutions, social movements, and advocacy groups of every sort. It seems like everyone has a sound byte these days.

Before I bring this topic full-circle to its financial and economic implications – if only to illustrate the subtlety, sheer pervasiveness, and impact of some modern propaganda — I want to share a few of my favorite contemporary phrases that lend themselves quite well to their propagandist objectives:

Ethnic Cleansing – This is a polite, yet important-sounding way of saying “If you don’t mind, we’d appreciate it if you, and everyone like you, would dig a ditch so we can shoot you and bury you in it. Thanks.”

For my part, I prefer the word “murder.” Because that’s what it is.

Political Correctness – This phrase is just a haughty way of saying, “If you can’t say anything nice, don’t say anything at all.” Am I the only person in the world who thinks this hackneyed Clinton-era lyric sounds absurd?

Just be nice to people. Don’t invent some fancy word for it.

Eminent Domain – This is an extremely sophisticated, legalistic way of saying, “We’re stealing your house. Get the hell out. Now.”

Intelligent Design – This is how a bunch of envious Christians respond to a concept as cool as Natural Selection. I’m still wondering what they’re going to come up with in response to The Big Bang. Maybe Provident Ejaculation? Whatever it is, I’m sure it will sound positively scientific and rational.

And now for my favorite…

Quantitative Easing­ – This is government’s modern, scientific way of saying, “We will print money and lower interest rates, manufacturing the illusion everything is worth ‘more.’ In reality, however, we are systematically destroying your currency — along with the economy.”

I suppose it is just easier for politicians to say quantitative easing. Plus it sounds sophisticated.

I love the Keynes quote at the beginning of this piece. I really do. Here’s the very architect of quantitative easing basically saying, “By making you think your house is going to be worth more every year, your government is stealing your money.” Again, this isn’t Murray Rothbard or Milton Friedman. This is John Maynard Keynes!

There was a time — believe it or not — when price increases were the exception, and falling prices were the rule. As humanity has progressed, technology has always increased our standard of living, creating more efficiency. This has almost always resulted in falling prices.

Think about how much bananas must have cost in Norway during the 16th century. Or think about how expensive cinnamon must have been in England in the 10th century. Most people would never even see these commodities – let alone be able to afford them. Today, bananas and cinnamon are accessible globally, to anyone, at very low costs. Technology caused them to depreciate over time – not increase in price, as Keynesians want you to believe.

Or consider the most contemporary – and perhaps best — example of all: the computer industry, and Moore’s Law. Prices of computers don’t increase over time; they decrease with obsolescence and improved technology.

This is the way the economy should work. Instead, however, in order to create the illusion that everything is increasing in value, governments have created monopolistic fiat currencies and central banks. No one can compete with the primary medium of exchange, and so governments print currency and manipulate interest rates with reckless abandon.

In theory, it’s a great idea: we buy stuff and central banks keep inflation at about 3%. After a long period of time, our stuff will seem more valuable. A person can boast to his friends at work and at parties, “I bought my house for $50,000, 30 years ago. Today it is worth $200,000! I have quadrupled my money!”

In reality, his annualized rate of return is about 4.5%, and unless he paid cash, his interest rate was higher (and probably a lot higher) than his rate of return. So, in reality, he has lost money on his house. And that doesn’t account for inflation.

Of course, he did write off all the interest he paid, and he had to live somewhere. But that doesn’t really diminish the point: considering everything I just said — along with the fact that inflation has, in the best case scenario, averaged 3%-4% — his house has not really gained in value at all.

Yes, there are exceptions; Warren Buffett has averaged a purported 23% annual rate of return during the decades of his career. But unless you were both lucky enough and smart enough to have picked up 100 shares of Berkshire-Hathaway (NYSE: BRK-A) when it was trading under $500, you probably haven’t been outpacing inflationary price-increases as much as you think you have – if at all.

But it sure feels like you have, doesn’t it? How many times have you heard this statement: “I can remember when [gas, a coke, a pack of cigarettes] was [insert really low price here]!” The government perpetuates its myth, because it needs you to believe it is doing a good job. It achieves this by creating the illusion everything is going up in value. In real terms, however, the prices of most goods and services are actually falling — after taking into consideration the government policy of artificially perpetuating inflation.

In the last hundred years, the world’s reserve currency — the U.S. dollar — has lost 96% of its value. But inflation is an unsustainable lie. The only question now is how long it will take to destroy the remaining 4%.

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