Inflation: Taxation via Debt.

I felt that is was necessary to include before I dive into the overview.  Dr. Ron Paul’s sentiments ring true here; inflation is a tax upon the people of which they will never see. That is, until they go to the grocery store and notice that milk is near $5 a gallon when it was normally $2.80.

However, in this clash between Dr. Paul and Bernanke it is known that they come from two different understandings of how economics work. For Dr. Paul it is the Austrian School and Bernanke it is the Keynesian School.
There are major differences between these two types of ecnomics, you could even go as far as to say that they are polar opposites. It is intriguing to me that Bernanke happens to say that he agrees with Dr. Paul on the facts that if the Federal Reserve pumps more money into the system that it will only devalue the dollar, causing inflation to rise.

However, Bernanke continues on toward the end of the clip saying that it is the Federal Reserve’s policy to control the amount of inflation.

Before I go off on how ridiculious his statement is, I will explain the different views between Keynesian and Austrian Economics.

Keynesian Economic view on Inflation increase in money supply has no relation to inflation, it is only the pressures of the economy expressing themselves in the marketplace.

Austrian Economic view on inflation is by definition always and everywhere simply an increase in the money supply, which in turn leads to a higher nominal price level for assets (such as housing) and other goods and services in demand, as the real value of each monetary unit is eroded, loses purchasing power and thus buys fewer goods and services.

This is  an interesting concept to me as for the Keynesian view, it is like they say that the real root of the problem is the market place and not the actions of those who control the money supply. For me, the money supply is what controls the marketplace. If you flood the market with money, the price of items will continually go up. That is how fiat currency works, with nothing to back or control it, inflation is used as a tax and will run rampant over time.

Lets go back to Bernanke’s comment on “controling inflation”.

Mr. Bernanke, Do you feel the Federal Reserve has done a good job at controling inflation? I do not think so. $1 USD today is equal to $0.047 from 1913. Is that a good control on the market place? With banks lending money, over extending themselves, and the federal reserve always ready to loan money to the government, it is no wonder the USD has been devaluated to this extent.

All I can say is think of it like this, when you work hard for you weekly paycheck and realise that you have to pay 25-50% more for your groceries, wouldn’t you get mad? It’s not the fault of the grocer but the fault of the private Federal Reserve banking System.