Who's to Blame for Inflation?

Inflation is arguably the number one phenomenon influencing the economy today. It is driving markets and policy. But what (or who) caused it?

People point at many culprits from greedy corporations to "Putin's price hikes." But in this episode of the Money Metals' Midweek Memo, host Mike Maharrey explains why the blame is being misplaced. He identifies the real culprit and explains the root cause of the confusion.

Mike kicks off the show by comparing language to mathematics. 

"If you are doing algebra, you can get all the arithmetic right, but if you have the wrong formula, you’ll get the wrong answer every single time. The same is true of communicating ideas. You have to get the definitions right in order to adequately communicate. Definitions are the formulas of language."

This is a big problem when it comes to understanding inflation. As Mike summed it up, "Most people get the definition wrong."

"As a result, we have all kinds of misunderstandings about why we’re experiencing price inflation today. Inflation is one of the most significant phenomena in the economy right now. It is driving markets. It’s driving Fed monetary policy. And that Fed monetary policy is eventually going to collapse this debt-riddled, bubble economy. But hardly anybody talks about inflation in a precise way, so most of what you hear in the mainstream is just flat-out wrong."

But as Mike points out, it seems like at least some people in the mainstream are realizing that the Federal Reserve doesn't have things under control. Some big fund managers are starting to jump on the gold bandwagon. A Citi analysis of big fund managers found that 83 percent are now long precious metals.

"Why? Because they’re worried about inflation."

Mike points out that even central bankers at the Federal Reserve are starting to back off their victory dance. He quotes several Fed officials who warn that there isn't enough confidence to start cutting rates. Then he makes an interesting observation.

"In past months, this kind of hawkish Fed talk would have tanked the price of gold and silver. Higher interest rates are considered a headwind for precious metals because they are non-yielding assets. But gold continued to hold its ground. Perhaps the mainstream has finally figured out what I’ve been saying for a long time – inflation is ultimately going to win this fight."

And when you have inflation, you want to have an inflation hedge!

So, who is to blame for inflation? The trendy answer is "greedy corporations." 

"Now, you might hear some other reasons bandied about. Some people will tell you supply chain chaos during Covid did it. Some people will tell you it’s Putin’s price hikes. And a lot of people will just throw up their arms and say, “Well, inflation just happens. It’s the price we pay for a strong economy.

"No. No. No.

"It’s none of that."

So, who is it? 

Government.

Mike argues that there is a key reason the government can get away with creating inflation without catching any blame. 

"A big part of the problem is that the powers that be have managed to redefine inflation so it obscures government's culpability. Remember – definitions are important. Crucial, in fact."

To prove his point, Mike explains the precise definition of inflation,  how it has been redefined, and the obfuscation it causes.

"Over the years, government officials, along with their apologists in the mainstream financial media and academia, intentionally shifted the definition of inflation to suit government purposes. The standard definition of inflation you hear during White House press conferences or a CNBC roundtable is basically just government propaganda that keeps you from realizing that it's all the government and central bank's fault."

Unfortunately, there isn't much we can do beyond trying to educate people. 

"We really can’t stop this monetary malfeasance. Heck, most people aren’t aware it’s happening. All you can do is try to shield yourself from it. How? Do what the big fund people seem to be doing now – get an inflation hedge – gold and silver."

Articles Mentioned in the Show

Here's a Dirty Little Secret: Fed Monetary Policy Is Still Loose

Every Day Is Tax Day When You Have Inflation