by Daniel Lacalle
Mises.org
The money supply is rising again, and persistent price inflation is not a surprise. Price inflation occurs when the amount of currency increases significantly above private sector demand. For investors, the worst decision in this environment of monetary destruction is to invest in sovereign bonds and keep cash. The government’s destruction of the purchasing power of the currency is a policy, not a coincidence.
Readers ask me why the government would be interested in eroding the purchasing power of the currency they issue. It is remarkably simple.
Monetary inflation is the equivalent of an implicit default. It is a manifestation of the lack of solvency and credibility of the currency issuer.
Governments know that they can disguise their fiscal imbalances through the gradual reduction of the purchasing power of the currency and with this policy, they achieve two things: Inflation is a hidden transfer of wealth from deposit savers and real wages to the government; it is a disguised tax.