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Inflation Risk For Bailouts

October 8, 2008


As a college student, most likely you have remained indifferent to the “financial crisis”. For whatever your reasons, whether it be the fact that you have been busy studying for your midterms, or perhaps you have been preoccupied with work and class attendance that you have tuned out the mainstream media’s assertions that what is happening on Wall Street, is your problem.

Most college students don’t own a mortgage, have stocks or 401k plans to worry about, so the reasons for ignorance when it comes to the current economic situation are quite reasonable.

However, what is happening in New York, and within the halls of Washington D.C. are profound, and unprecedented. The government’s response to the crises is undeniably laced with the potential to eventually affect you negatively. Remember, in a capitalist, free market society, cash is king, and everything you do revolves around it. 

Let’s engage in a quick thought experiment to help you formulate the vital importance of currency stability in this modern consumer based economy.

Consider for a moment your purchasing power is drastically limited by introducing the notion that the currency you hold in your hand has lost a percentage of value over night, to the point where it would take 50 bucks to buy a loaf of bread.  This is called inflation, and if it occurs at an uncontrollable increasing rate, it’s known as hyperinflation.

 It has happened before. Numerous of times in fact.

It happened in the 1920’s German Weimar republic, in Mexico in the late 1970’s, and recently in Argentina in the 90’s. Always, people suffer, people go hungry. We must prevent this at all costs. A good student of history will realize an unstable political atmosphere and dictatorial governments breed out of economic instability. These consequential entities are enemies of economic and civil liberties.

The cause of inflation is rather simple, economists will always point towards too much fiat (paper) money in circulation. In most cases, the government’s central bank introduces a policy that prints too much money. The simple law of supply and demand dictates that when there is too much of something, the value will go down. It is no different for currency.

Now mull over the current economic “bailout plan” that both parties have supported, and promoted.  It includes a plan that will pump close to seven trillion dollars into the economy. The entire economy of the U.S. in 2007 was 13.8 trillion dollars.

 It doesn’t take an economist to realize that the current plan will produce even more inflation that according to government figures is already at 5.8% a year. When you look at inflation rated by independent economic firms, it has consistently sat around 8% for the past 3 years.

It may prove in the near future, whether you want to pay attention to what is going on or not, that economic instability will eventually reach you personally.


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