Saturday, July 26, 2008

Ron Paul on Inflation

In a statement before the House Committee on Financial Services, Ron Paul pointed out the error of blaming higher oil and food prices for the increase in inflation. "The pundits have causation backwards: it is inflation that leads to rising prices of oil and food, and not vice versa." Though the Fed no longer reports on M3, M2 and MZM are still around as approximations of the money supply, and both of these measures have increased significantly, Paul added.

"Until the cause of inflation is understood, no effective strategy can be undertaken to combat it," he said.

But is it the case that most policymakers and pundits have flawed ideas about inflation? It doesn't look like it. As Paul admits,
. . . the government does not want inflation to be done away with. Inflation benefits debtors and harms creditors, and the United States government is the biggest debtor of all. The United States government, the banking monopoly under the Federal Reserve System, and politically-connected firms and industries are the first entities to take advantage of new money injected into the system, before prices increase.
It's not the government and its pundits that need educating. It's the general public.

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