Inflation and the Federal Reserve

by Richard C. Cook

Global Research, October 2, 2007

No term in the “dismal science” of economics is more misunderstood than “inflation.” The word means “rising prices,” but is used at different times by different people to describe totally different phenomena.

The most predominant type of inflation is natural and occurs as raw materials are used up and must be replenished. It’s akin to the law of diminishing returns, or entropy, and is overcome by technological innovation. Another type of inflation is expressed through constantly changing conditions of supply and demand, including the fluctuating cost of labor. Yet another type results from the predatory pricing practices of monopolies such as the worldwide oil cartel which has jacked up the cost of petroleum to over $80 a barrel.

Of an entirely different order are the inflation induced by central banks such as the Federal Reserve in creating financial bubbles or by the federal government in taking inflationary actions such as annually compounded increases in government employee salaries to reduce the real cost of servicing its astronomical debt. These instances might actually be viewed as “high crimes and misdemeanors” which violate the due process clause of the Constitution by unlawfully destroying the value of citizens’ property.

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