Smoke and Mirrors

If you haven't already, it's time to wake up to the fact that most politicians are charlatans and liars.

And no, I'm not talking about the "war on terrorism". That's just a more obvious manifestation of the consequences of "power run amok".

Lying is endemic. It's structural. It's in the very nature of what we call "democracy". And much of it is about things that don't make the news, and are too subtle for general discourse.

The extent of this lying is far too huge to talk about in just one essay, so I'll confine myself to one aspect of it - the economy.

Much of what we are told about economic matters is "smoke and mirrors" - an illusion, similar to a magician drawing attention to what his right hand is doing, while his left hand is where all the real action is.

It's called "sleight of hand".

Think of this illusion as a pyramid. It has a wide foundation at the bottom, and rises - layer by layer - to a peak. So, by the time you are discussing matters relating to the top layer, (which is based upon the layer below, and below that), it's quite possible to be talking gibberish.

This is lying by default. Lying because lying has become a way of life. And hardly anyone can unravel such lies, because the foundation of the entire system itself is corrupt and false.

To illustrate what I mean - let's discuss the issue of inflation.

I recall - back in the late '70s and early '80s - how predatory inflation was. At that time I had a home mortgage at a rate of 18.5%. I accepted it as normal then, because that's the way it was. But in retrospect it was outrageous.

It was a time of intense real estate speculation. You could buy a house one week, for a certain price - and a few months later, sell it for 25% more.

An obvious question, you'd think, would be, "what caused this inflation?" And it was a question I did ask - and found the answer, though not from any representative of government!

So, let's get the real definition of inflation out in the open now - before the murk of obfuscation sets in.

Inflation is caused by a increase in the money supply - in excess of any corresponding increase in goods and services for sale. And it results in the devaluation of the currency. More dollars are needed to buy the same amount of goods or services.

However, this type of monetary inflation (and accompanying price rises) is NOT to be confused with price fluctuations caused by individual market supply and demand situations.

For example: when tomatoes are $1 per kilo one day, and $2 per kilo the next, the explanation is simple - the demand for tomatoes went up, without any corresponding increase in the supply of tomatoes.

This price rise in tomatoes is NOT caused by inflation. It's caused by the supply of, and demand for, tomatoes.

Now, if your friendly government or government-appointed monetary authority, increases the supply of money - in excess of any corresponding increase in the supply of goods and services - then you will have more money chasing fewer goods. And the end result will be an increase in GENERAL prices (not just tomatoes).

This relationship between inflation (manipulation of the money supply) and increased prices has lead governments to "redefine" inflation - to suit their nefarious purposes.

The "old" definition was a bit blunt - as it pointed the finger at the governing authorities, if inflation should become troublesome. Under the "old" definition, Joe Public could easily put the blame squarely where it belonged.

The political culture of lying had to find a "solution".

Inflation is a form of hidden tax. If your government can be shown to be inflating the money supply - and decreasing the value of your own savings and purchasing power - then you can clearly see the link between government policy and the shrinking value of your own money. It's tax by stealth.

So, the definition of inflation underwent a "facelift" - to something much more palatable, and something much less likely to induce finger pointing by disgruntled citizens.

The powers-that-be decided that inflation was NOT to be defined or measured by increases in the money supply (government action) - but by increases in the consumer price index (CPI).

However, the two are NOT the same. It's quite possible to have no increase in the consumer price index - and at the same time have an increasing money supply.

When you read the "official" inflation figures, you are being told whether a "basket" of prices are moving up, and by how much. If they go up 3% in one year - then you are told there is 3% rate of inflation.

But this is a FALSE definition. And like anything false, it leads to a false conclusion.

If prices aren't rising, or not rising very much (2% per year, for example), then we assume inflation of the money supply is low or non-existent.

But we are missing something - something we cannot see. We are missing the fact that prices are in fact FALLING. But these falling prices are hidden by massive increases in the money supply - which neutralise such price falls.

The government gets to have its cake, and eat it too. It gets to use the mechanism of monetary inflation, for its own ends - while having such a process defined almost out of existence.

The fact is prices should be falling - for all sorts of reasons.

You can see this everywhere - particularly in areas of rapidly changing technology.

For example - this last week I upgraded my computer of the last two years. I purchased a new version of the very same model.

In every way, it is a better machine. It's faster. It has more memory. It's running a newer operating system, and it allows me to run newer software. And much more besides.

But the one fascinating thing is that this new computer cost me 33% less than the earlier one. In other words, more for less.

This "more for less" phenomenon is everywhere. And it's the way it should be. That's what an improving economy and standard of living means - more for less.

If you are buying clothes this week, chances are the label will say "Made in China". What that means is you are paying less for those clothes than you would have, had you purchased the same made in your home country.

So, whether its technological advances, or reduced labour costs due to global competition, the reality is that prices ARE falling. And the full impact of these falling prices is being hidden, or absorbed, by the policy of monetary inflation.

You are being cheated out of lower prices (and therefore higher standard of living) by a hidden inflation and the false reporting of it.

So, where does this "new" money actually go? I think the evidence suggests it has been used to fund the purchase of shares and other assets. And, as a result, the prices of such have risen rapidly. Assets such as these are not usually included in any consumer price index - and therefore not part of any analysis of the inflation rate.

Back in the late '70s and early '80s, inflation was nailed to the door - and everybody could see it, and complain about it.

Now, its been redefined - and this is allowing state-mandated monetary authorities to actually inflate our currencies - while appearing not to.

Sleight of hand.

It's bad enough that such hidden inflation is robbing you and I of lower real prices, (and hence, better standard of living) but more importantly, it's laying the foundation for the re-emergence of 70s/80s style inflation. Inflation that is yet to come.

You cannot "cook the books" forever. And you cannot avoid the consequence of history-proven economic laws.

So, next time you hear some mealy-mouthed politician ramble on about lower taxes, more jobs, and how they are responsible for keeping the economy ticking - remember this: politicians create nothing. They are parasites on the body economic. They add no value to anything. In fact, they are net value destroyers.

Political control of the economy and the money supply is a disaster waiting to happen - and madmen are at the helm.

What's worse - they're lying madmen.

Yours in freedom

David MacGregor