Inflation occurs when the supply of money in circulation begins to become debased and erodes in value. The government, with its insiders and elites, is both the cause of and the primary beneficiary of inflation. To see why, consider the past, when money was linked to metal coins made out of gold or silver. In ancient Rome, a denarius was at first almost 100% pure silver. Slowly and gradually, over time, the Roman government reduced the amount of silver in the denarius until it contained only 2% silver. Why? Because by debasing the currency, the Roman emperors were able to pay off government debts by forcing its citizens to accept coins that had less and less precious metal content. The debased coins were worth less, forcing citizens to spend more and more denarius to buy basic goods. In other words, debasing the currency caused inflation. Today a similar debasing process is going on with American money. Once a U.S. dime was 90% silver; now it is 0% silver. Until 1934, a U.S. dollar bought an ounce of gold for the fixed rate of $20.67. Now it costs over $1,200 to buy an ounce of gold. The U.S. dollar is almost certain to have a sustained run of extremely high inflation over the next decade because of continued huge government deficits and unfunded liabilities like the recent health care reform. Even before the health care makeover, the Petersen/Pew Commission on Budget Reform last year warned that the national debt was expected to grow from 40% of the gross domestic product (GDP) in 2009 to 85% of the GDP in 8 years, 100% in 12 years, and 200% by 2038. In other words, in just a few years our nation will owe twice as much as it produces. Since no conceivable level of taxes and borrowing will enable the U.S. to service such an enormous debt, the cowardly political way to deal with the situation will be to allow inflation to run rampant. Inflation-Proof Your Portfolio will be a useful guide in explaining the debt crisis and the rising inflation and providing key tools to protect readers from inflation.
