Devaluing the dollar

Glenn Beck posted a phenomenal video about the rapid growth of total dollars in circulation. See below:

Any time a government inflates their money supply, it lessens the worth of a single unit of money. When your grocery bill used to cost $100, it now costs $150.

While this presents a tough situation for many people, the theory is that wages will eventually rise to meet the pre-inflationary levels. Then we pay off our debt at less cost (in inflated currency) to us.

In practice, the situation is more complicated.

Once investors find that we give them back dollars that are worth half as much as the ones they loaned us, they realize that an investment in American loans is a greater risk. They call this “inflationary risk”. In order to compensate them for the greater risk, higher interest rates must be paid for every dollar borrowed.

The next in line are commodities. Traders in this area base much of their bids on the value of a currency. If Saudi Arabia is selling barrels of oil for $80 right now, but then the dollar becomes half as valuable, they will demand $160 (or more based on future projections) for that same barrel of oil.

What happens if we don’t want to pay $160? Google the term “price elasticity”. Basically, we will either reduce our standard of living, refusing to buy that high priced oil, or we will pay the higher price and neglect other items we would spend money on.

The hardest his people will be those on a fixed income. If you have to buy necessities, but those prices keep rising, you will eventually reach a point where your fixed income no longer exceeds the new expenses.

Leave a Reply