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Posts Tagged ‘Keynesianism’

Financial Crisis

A prudent man foresees evil and hides himself; The simple pass on and are punished.

    – Proverbs 27:12

In light of the recent upheavals in the financial markets, it seemed good to me to take this occasion to update my comments on ongoing financial crisis. I say ongoing, because it is my contention that the crisis that first manifested itself in 2008 has never really gone away.

In Ezekiel we read God’s complaint against the prophets of Israel. At one point he says, “Because, indeed, because they [the prophets] have seduced My people, saying, ‘Peace!’ when there is no peace – and one builds a wall, and they plaster it with untempered mortar – say to those who plaster it with untempered mortar, that it will fall. There will be flooding rain, and you, O great hailstones, shall fall; and a stormy wind shall tear it down. Surely, when the wall has fallen, will it not be said to you, ‘Where is the mortar with which you plastered it?’ ”

Such a wall, one built with untempered mortar, may appear sound. But when faced with the elements, it’s shoddy construction becomes evident to all.

In his Sermon on the Mount, Jesus expressed a similar idea when he compared the man who built his house on sand with the man who built upon the rock. For all we know, the house built on sand may have been beautiful in appearance, but it lacked a firm foundation and it fell. The house built on the rock took the beating and stood strong.

It is the contention of this author that the relative prosperity that the West has enjoyed since 2008 is rapidly coming to an end for the same reason that both Ezekiel and Jesus described: The real causes of the 2008 crisis have never been addressed, only papered over with fake solutions. Fakery, it would appear, is coming to an end.

In the following post, and perhaps posts, I’d like to explore at least some of the factors that are driving the West to bankruptcy. I’d also like to discuss what Christians can do to prepare themselves for the difficult financial times that lie ahead. Finally, I’d like to discuss what Christians can do once the collapse occurs to begin to rebuild our civilization on a sounder footing than we have today.

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Elisha Prophesies the End of Samaria's Siege

Elisha Prophesies the End of Samaria’s Siege by Nicolas Fontaine, 1625-1709.

 

Inflation – What it is and what it isn’t (continued)

In the last installment of this series, I mentioned that the big takeaway point was the definition of inflation. As you may recall, we defined inflation a bit differently than is commonly understood. Most people, when they talk about inflation, mean to say that prices – the amount we pay for items such as gas or bread or rent – have gone up.

The most common statistic used to report rising prices is the Consumer Price Index (CPI). The CPI measures the cost of a representative basket of goods and services, comparing the average price of these items in one period with their average price in the following period.

When the CPI shows average prices going up from one reporting period to the next, the rising prices are reported in the news as inflation. Occasionally, average prices fall. When this happens, we are told that deflation has occurred.

But the definition of inflation that was presented in Part 4 of this series did not rely on measuring the average cost of goods. Instead, inflation was defined as the increase in the supply of money. Conversely, deflation was not defined as decreasing prices, but rather the decrease in the supply of money.

But even though inflation and deflation are not the same thing as rising and falling prices, there is a relationship among them. When the money supply increases, assuming the amount of goods and services in the economy remain the same, prices go up. Conversely, when the money supply falls, prices go down. As Peter Schiff puts it, “The money supply expands and contracts. Prices go up and down. Inflation and price increases are not the same thing. One is cause. The other is effect” (Crash Proof, 69).

Now you may be asking yourself why I bother to define inflation as I do. Isn’t the common definition of inflation good enough as long as we all agree that inflation is rising prices? Why confuse things be bringing in the concept of money supply?

The best argument for defining inflation as the increase in the supply of money is that it clearly identifies the cause of rising prices: central banks creating too much money, usually in response to governments spending too much money.

If we are satisfied with the usual definition of inflation, government officials can easily fool us into thinking that prices are going up for reasons that have nothing to do with their own policies. Bad weather, profiteering by greedy speculators and lack of sufficient governmental regulations are common scapegoats for rising prices, even though prodigal politicians and the central bankers that fund their wasteful spending are the real culprits.

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