Inflation Is About More Than High Prices. It’s About Dignity.

No reader needs a warning about inflation. It’s already here and it’s not hidden; you see it every time you pull up to the gas pump or browse the meat and poultry section of the supermarket.

Inflation is not limited to consumer prices. It’s also appearing in asset prices for homes, stocks, and commodities. It’s everywhere.

Most people understand that inflation is a kind of tax. You pay more for the same merchandise, which means your dollars are worth less. The difference between what dollars used to be worth and what they’re worth today is the “tax” that was taken out of your income.

If that’s the case (it is), who is the tax collector? Who benefits from the erosion of your purchasing power?

The answer is debtors generally. If someone owes money and inflation hits, the real value of what they owe goes down. It’s easier to pay off debt because the real value of what you have to pay is less.

At a simple level, the losers from inflation are lenders, savers, and consumers. The winners are debtors.

That’s why the best investment strategy for fighting inflation is to borrow money and invest in hard assets like real estate, gold, or energy. That way the value of the asset goes up and the burden of the debt goes down. You win both ways.

With that in mind, it’s useful to ask who is the biggest debtor in the world? The answer is the United States with over $30 trillion in national debt.

Every bit of inflation reduces the real value of that debt. That’s why the comparison of inflation to a tax is so potent. With inflation, citizens lose and the government wins. That’s the ultimate tax.

Still, there’s more to the inflation phenomena than just financial winners and losers as described in this article. Not everyone has the economic understanding described above. Not everyone has the ability to borrow or the economic savvy to invest in hard assets. Many are just trying to feed their families and pay their bills.

They are victims of inflation but don’t understand why. This is even worse than the hidden tax. It destroys trust in our leadership and confidence in our institutions.

Ultimately, inflation destroys confidence in the money itself. That has huge political consequences. It doesn’t take a Ph.D. in economics to understand that something’s gone wrong.

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