by Gene Denardo

Created on: May 28, 2009

Inflation certainly exists, there is no doubt about that. And, it exists in much greater intensity and depth than our economic "experts" would like you to believe. And there is absolutely no reason for it, it is totally unnecessary and serves no positive role in our economic lives.

There are theoretically two types of inflation, but at heart there is only one; monetary inflation. This is simply the growth of the amount of money in the economy or the money supply. This is determined by the actions of the Federal Reserve Bank, which controls and monopolizes our monetary policy. If the Chairman and the board decide to increase the money supply and magically add new dollars to the economy, we will experience monetary inflation. It is only a matter of time.

Monetary inflation is too many dollars chasing too few goods. When the amount of dollars in the economy is increased, if a greater amount of products and services aren't correspondingly increased, the excess money will seek out the existing goods and prices will rise to meet the money. Granted, the economy can pick up because of this activity and artificially increased demand, but any sustained boom must be sustained with increasingly larger amounts of new money. Thus, the cycle begins until the economy can no longer afford the inflated costs and the bust begins. We have just experienced the bad end of this type of monetary cycle.

The other type of inflation, price inflation, occurs as a result of monetary inflation. If money was not created out of nothing, it is still possible to experience price inflation, but it would occur in "segments" of the economy, rather than throughout the economy. Supply and demand would also resolve price inflation through competition. Producers tend to flock to areas of the market that have high demand and correspondingly high prices and soon the demand is filled and the price slackens. It is this constant adjustment that is inherent in a "free market".

The less "free" the marketplace is, the less responsive the market factors are to price. A controlled market that we have in the modern world often doesn't react fast enough to alter prices and bring equilibrium. Adjustment must be brought in from the outside through government or otherwise and this further removes the market from its natural functions. It soon becomes hard to discern between "market reactions" and "intervention". At this point, it becomes very difficult to determine the direction the economy will take and people

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