Three shocking new NIAnswers

Here are three shocking new NIAnswers that NIA just added into its database:

How come there is so much confusion in the world about the definition of inflation? If inflation is an increase in the money supply, then aren't we currently seeing deflation since the M3 money supply is contracting?

NIA's simple definition of inflation is the printing of money. It is the government and the mainstream media who incorrectly describe inflation as being the rise in prices. Because the overwhelming majority of Americans were taught in school that inflation is the rise in prices, we sometimes use the word inflation to describe rising prices, but most of the time we specifically say "price inflation". For clarity purposes, we often use the term "monetary inflation" when referring to the printing of money.

The M3 money supply has increased by 10-fold over the past couple of decades. M3 has contracted over the past year, but this only tells us that there are currently severe structural problems in our economy that are preventing U.S. dollars from being lent out to Americans and flowing through our financial system freely. If the Federal Reserve had their way, M3 would be increasing right now, but just because we are seeing a short-term contraction in M3, doesn't mean we are seeing deflation.

Federal Reserve Chairman Ben Bernanke has been using literally every tool in his arsenal to create unprecedented amounts of monetary inflation. The Federal Reserve's monetary base has grown by 133% since September of 2008 to its current level of $2.036 trillion. Excess reserves held by banks have grown by over 1,600% since September of 2008 to its current level of $1.045 trillion.

NIA believes the current $1 trillion plus in excess reserves held by banks can best be described as a dam getting ready to burst that will flood our country with price inflation. The bursting of our excess reserve dam is inevitable. After all, the purpose of banks having this money is to make loans with it. Once these dollars enter into our fractional reserve banking system, they will likely quickly multiply by 5 to 10 times, causing M3 to skyrocket.

Foreigners today have about $10 trillion in dollar-denominated assets that are currently being hoarded, but can be dumped at any time, causing the U.S. dollar to collapse and gold, silver and commodity prices to rise astronomically. Once these foreigners wake up and realize that the U.S. economic recovery is phony and we are still in a steep recession, we will see foreigners rush to diversify out of the U.S. dollar.

A collapsing U.S. dollar will cause out of control price inflation and banks will be forced to lend their excess reserves in order to seek a return that is higher than price inflation. The Federal Reserve is paying banks interest of only 0.25% on their excess reserves. Considering that NIA estimates the real rate of U.S. price inflation to already be 5.24% to 6.24%, these excess reserves are already losing at least 4.99% of their purchasing power annualized.

What is the root cause of the U.S. debt crisis and what is the solution to the upcoming hyperinflationary crisis?

The root cause of our debt crisis is the Federal Reserve, their manipulation of interest rates and our fiat currency system. The existence of the Federal Reserve and all of its actions are unconstitutional. If our country simply followed the constitution, we wouldn't have all the problems we do today.

There is no solution to the upcoming hyperinflationary crisis. Our debts can never be repaid through taxation. The U.S. will either default on its debts or print its way out of them. If we print the money to pay back our debts, hyperinflation will come as a result of our destructive monetary policies. If we default on our debts, hyperinflation will still occur anyway as a result of a complete loss of confidence in our currency.

NIA's goal is to help educate as many Americans as possible about the truth so that they can take the appropriate actions to preserve the purchasing power of their savings. If we are successful at spreading our message and educating a large percentage of America, we will hopefully have the resources to rebuild our nation in the future after the hyperinflationary crisis is over and the U.S. dollar is officially declared dead and worthless.

Politicians in Washington address only the symptoms and not the underlying causes of price inflation. In 2008, Congress saw oil prices going through the roof and held hearings about why oil prices were rising and later placed the blame on speculators, not realizing it was their passage of Bush's stimulus bill and the Federal Reserve's artificially low interest rates that gave speculators the ammunition to drive oil prices sky high.

The same thing is happening today in health care. Congress placed the blame for out of control health care costs on the free market, when a free market hasn't been allowed to operate in the health care industry for decades. With the passage of the new health care bill, Congress is adding more layers of bureaucracy that will make health care more unaffordable than ever. If they only got out of the way, the free market would drive health care costs down.

Why did NIA feel the need to attack Dave Ramsey by using such unnecessary terms as "imbecile" and "moron"? Don't you believe this language will make NIA look unprofessional and discredit the movement that we all believe in?

NIA would never use those terms to describe somebody who simply disagreed with our viewpoints. There is nothing that makes us happier than hearing from NIA members who disagree with certain aspects of our message. We love to debate about any economic topic and have great respect for differing opinions.

Dave Ramsey, however, is somebody who deserves very little respect. When you are the host of a financial television show on FOX Business, you are in a position that automatically gives you a great amount of credibility, whether it was earned or not. Mr. Ramsey is somebody who abused his powerful position and gave his viewers investment advise that destroyed the value of their savings.

On January 23, 2008, Mr. Ramsey called Peter Schiff (somebody who we greatly respect and are supporting in his run for the U.S. Senate in the State of Connecticut) a "kook" and an "idiot". The Dow Jones was 12,270 at the time and Mr. Ramsey said the only way the stock market could possibly crash is if Home Depot, Microsoft, Ford, General Motors, Alcoa, General Electric, and Whirlpool all "closed" and went out of business. He said our financial system today is "structured completely differently with many more safeguards than it had in the 1920s" before we went into the Great Depression.

He compared the stock market crash of 1973-1974 (when the Dow Jones lost 45% of its value) to the stock market crash of 1929 and said the crash of 1973-1974 didn't lead us into a depression like the crash of 1929 because "the way our markets are structured is completely different, the way our banking system is completely different, it's much more sophisticated." He then discussed the stock market crash after 9/11 (when the Dow Jones made at that time its largest weekly point drop in history) and said that the market quickly recovered in 56 days due to "lots of safety valves and safety nets and things to relieve steam" that were not in place during the Great Depression. He said the "market is probably a hundred times more sophisticated and complicated now than it was in 1929".

In regards to gold, which was only $890 per ounce at the time, Ramsey said, "I do not own any gold nor am I buying any gold, it's a stupid investment." He said buying gold is a "dumb idea" and that, "I have all of the money that I own tied up in bank accounts at banks guaranteed by the FDIC."

The Dow Jones declined by as much as 47% after Ramsey made these comments. Meanwhile, the price of gold just reached a new all time high this week of $1,252.10 per ounce.

This notion that the U.S. will never experience another Great Depression because our financial system is more "sophisticated" with "safety nets" that didn't exist in the 1930s, is absolute hogwash. This message has been fueled by the mainstream media in their attempts to help bankers on Wall Street sustain the financial bubbles of recent decades. The main difference between our financial system then and now is the Federal Reserve's willingness to create monetary inflation. Although the Federal Reserve may have temporarily prevented another Great Depression from occurring, it will be at the expense of a Hyperinflationary Great Depression sometime this decade.

The National Inflation Association
http://inflation.us