How Inflation Enriches the 1% & Politicians

The concept of monetary inflation often flies under the radar, wrapped in the guise of economic stimulation. We’re told it’s necessary to spur growth and keep unemployment at bay.

Yet, beneath this veneer of economic benevolence lies a starkly different reality—one where the consequences of such policies stretch far beyond the intended benefits, affecting the very fabric of society and the principles of economic fairness.

The Illusion of Wealth Creation

At first glance, the idea of pumping more money into the economy sounds like a straightforward path to prosperity. After all, more money means more spending, right? Wrong.

The truth is that doubling the money supply overnight doesn’t magically double the amount of food, houses, or cars.

It doesn’t increase the real wealth—the goods and services that truly define an economy’s value. Instead, it triggers a deceptive redistribution of wealth, benefiting a select few at the expense of the many.

Wealth Redistribution’s Dark Side

When new money enters the economy, it doesn’t do so evenly. It flows through specific channels—loans, bailouts, asset purchases—benefiting governments, certain businesses, and individuals who receive this money first. These early recipients gain an unfair advantage, able to buy more and invest more, effectively transferring wealth from the rest of society to themselves. 

As this new money spreads, it dilutes everyone else’s purchasing power, a phenomenon that erodes the economic foundation of the middle and lower classes.

The current money system amplifies inequality through boom/bust credit cycles, giving competitive advantages to big corporations over smaller businesses and disproportionately benefiting the wealthy who can access cheaper credit.

This system supports extractive oligopoly structures, concentrating wealth and power in the hands of a few, exacerbating the wealth gap, and leaving the majority at a disadvantage.¹

Covert Tax of Inflation

Monetary inflation acts as a hidden tax, a stealthy mechanism through which governments can fund their spending without the immediate backlash of raising traditional taxes. This covert taxation, however, carries a significant cost: the erosion of purchasing power across the board, hitting those who can least afford it the hardest.

It’s a form of wealth transfer from the citizenry to the state, cloaked in the complexity of economic policy, far removed from the scrutiny of direct taxation.²

Wealth Inequality

One of the most insidious effects of monetary inflation is its role in exacerbating wealth inequality.

By suppressing interest rates, central banks make it cheaper for the wealthy to borrow, allowing them to invest in assets that appreciate in value, further widening the gap between the rich and the poor. This dynamic not only enriches those at the top but also undermines the principle of fair economic opportunity for all.

The False Promise of Economic Stability

The narrative that monetary inflation is necessary to combat crises and stabilize the economy is deeply flawed. It suggests that without the ability to print money, governments would be unable to respond to emergencies.

However, this overlooks the long-term distortions such policies create—misallocations of resources, speculative bubbles, and, ultimately, the painful adjustments required to correct these imbalances.

The temporary euphoria of easy money comes at the cost of future economic health and stability.

A Return to Sound Money

The question is whether central banks will continue raising interest rates to combat inflation, risk a potential economic downturn, or revert to their old ways of slashing rates at the first sign of trouble. The latter may offer a temporary reprieve but at the risk of igniting an inflationary spiral with far-reaching consequences.

The choice between short-term pain for long-term gain or continued reliance on the drug of easy money will define the economic landscape for years to come.

In the end, the allure of monetary inflation as a tool for economic management masks a complex web of consequences—undermining the principles of fairness, freedom, and prosperity that form the bedrock of a healthy society.

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Sources:

1. positivemoney.org/2018/01/inequality/
2. inflationdata.com/articles/2020/03/06/inflation-the-hidden-tax/