mybudget360.com / January 8, 2012
The Federal Reserve has been trying with all its power to stoke inflation. This is not the stated mission and you will not hear this proclaimed over loud speakers but if actions speak louder than words, this is the policy they are following. Yet the Fed is picking winners and losers with their inflation targeting. The reason the CPI for example is not reflecting major changes is the massive wealth destruction that has occurred in the debt markets, particularly with mortgages. In a system like our own, debt is money and there has been an enormous amount of debt that has been destroyed. Yet the Fed has aided the banking system by forcing rates lower and thus keeping asset prices higher for the mistakes taken on during the bubble years. This provides little support for working and middle class Americans. For example, this hurts fixed income savers including our rapidly aging older population. Also, even a modest amount of inflation is destructive should incomes remain stagnant.
Inflation is very high if incomes are stuck
We only experienced a brief bout of deflation in 2009 but since that point, inflation has been running at a steady clip:
People are so accustomed to inflation that they simply assume this is a naturally occurring process like the sun rising or the fall season. The reason inflation occurs is the money printing that happens in the background. Debt, or access to debt, is now a substitute for real money. With debt being harder to come by for average families, they have lost a source of money. This is why items that can be purchased with debt like a home or a college education now carry heavy premiums.