Tomatoes at Thriftway were $2.29 per pound. Higher elsewhere. It took $42.20 to fill my Dodge Caravan with Safeways discounted regular gas. Green fees at local courses have been bumped up a couple of bucks since last year. And of course there was my new property assessment. Ouch.
In spite of all this price escalation, the tomatoes are the same as before. Its the same gas, the same golf courses and the same house. Has any of it increased in real functional value? Not one pennys worth. Rather, were faced with paying for the same value with devalued currency. The root of the problem is that it takes more dollars to buy anything because the value of the dollar is shrinking.
Its called inflation. Price inflation, to be exact, because the word that describes whats happened to the dollars value is just the opposite; deflation. But since deflation has a negative ring we settle on referring to both sides of the issue as inflation. That way, optimists can advise us to mortgage ourselves to the hilt because well be able to pay off todays debts with the loads of cheaper dollars well earn in the future.
It worked before but darn the hard luck, its not flying this time around. Sellers of big-ticket items have tried every trick in the book. No payments for a year. Zero down. Rent-to-buy. You have a bad credit history? No problem. We have adjustablerate mortgages, ARMs, for cases like yours. And all went well until monthly payments leaped when they adjusted the rates. With the average card holder struggling under $7,000 of credit card debt, there was no way to handle jumped-up mortgage payments. Which accounts for the abundance of For-Sale signs.
The government did its part to keep the inflationary ball rolling by printing more money. Of course the increased number of dollars diluted the value of each one of them but with federal debts and salaries to be paid and a war to finance, the presses were kept rolling to flood the world with new paper money.
Not that the world didnt already own enough dollars. In fact, since WWII almost all the foreign currency holdings of trading nations were in U.S. dollars. But that is changing by the day as one nation after another dumps dollars to buy Euros. Wary bystanders are getting the jitters. With gold up from $272 per ounce in 2001 to $657 today, trading dollars for the security of gold carries its own sticker-shock. Like buying tomatoes.
On the other hand, foreign central banks understand that a full-scale run on the dollar could trigger a worldwide depression. To slow the dollars decline, they agreed to buy $805 billion worth of dollar-denominated assets. But still the slide continues.
U.S. war-planners shipped planeloads of money totaling billions of dollars into Iraq to buy allegiance to our war effort and fund public works projects. It disappeared. All of it. There was no accounting for where it went. It simply vanished into the Middle-East to further dilute the world pool of dollars.
If paper money can be thought of as certificates of value, then there is certainly more than one kind of money. Since I can trade a share of stock for money, stock certificates operate as another kind of money. When a corporation convinces the public to buy its stock, that stock trades like money no matter whether the corporation has assets to back it up or not. When stock held by the public is found to be worthless, as often happens, that stock is called, Blue Sky Stock. Same thing happens when a nations currency isnt backed up by assets. In recent years it happened to Angola, Argentina, Belarus, Bolivia and Bosnia-Herzegovina. That takes us only from A through B.
There are other certificates of value. When our government wants more spending power than it generates by printing money, it issues bonds. Time was when the citizens and corporations of the U.S. bought up our governments bonds but that changed when the government sought to sell more than its citizens could afford. So the phenomenon of heavy international financing for U.S. government operations arose. Since bonds can be traded for money, they too become the equivalent of money further diluting the value of the dollar.
Just as the value of a corporations stock plummets whenever expenses outstrip income, much of the dollars decline was triggered by overspending while cutting taxes. Economist James Galbraith put it this way, The economically illiterate neo-imperialists who decided to invade Iraq failed to understand the financial importance of international confidence in the U.S. and how invasion would put that confidence at risk.
Global effects followed. In 2006, Chinese officials hinted that holding U.S. dollars might be a bad investment strategy. The United Arab Republic is actively converting its holdings from Dollars to Euros. Korea warned that reckless U.S. fiscal policy might result in that nation shedding dollars.
It took $0.92 to buy one Euro in 1999. Today, one Euro costs $1.38. Given the changing value of the dollar, it should be no surprise that nations are selling Dollars and buying Euros. It is called self-interest. When our new enemy, Iran, announced that it would no longer trade its oil for Dollars, but Euros, we charged Iran with declaring economic war on us. Certainly Iran will miss no chance to irritate us, but their decision also reflects financial self-interest.
There is no end of proof that our nations finances are in the hands of economic idiots. If any of us attempted to run our households as they run the nation, our homes and cars would be re-possessed and wed be living on the street.
A scene from the movie, Network, leaps to mind: Peter Finch is standing at his window shouting, Im mad as hell and Im not going to take this anymore!

Comments may be addressed to: rgraef@verizon.net.