Does Destroying Money Decrease Inflation?
And Does Losing the Petro Dollar as the Reserve Currency Increase Inflation?
[Although I will make or allude to various assertions in this article, we might generally regard it as one run-on rhetorical question.]
I know a little about inflation… actually very little as I self-appraise, although I seemingly know more about it than many economists, government officials, book authors, and talk-show hosts who make bold public statements about the subject.
Glenn Beck on Inflation
On Tuesday, May 2, 2023, Glenn Beck began to crack open the egg about inflation. Beck and his co-host, Stu Burguiere, routinely offer sophomoric statements about the subject, but to Stu’s apparently disbelief, Beck embarked upon questioning the Fed’s practice of trying to cure inflation with the raising of interest rates. [I have repeatedly referred to this practice as economic masturbation.]
Beck was not strongly criticizing this practice but this was the general topic in which his germ of questioning arose. I listened more carefully as I was expecting that he was about to have a great epiphany. As it turned out, it was only a tiny step toward what I wanted him to realize.
Beck began by posing the question: “What is the first thing to do if a water pipe breaks in your house and your house is flooding? [paraphrased]”
Beck’s answer: “Turn off the water main. [paraphrased]”
Beck then asked Stu the definition of inflation and Stu answered with the shibboleth: “Too much money chasing too few goods.”
Then Beck correctly concluded with, “Then stop the money printing to correct the too much money part and allow businesses to increase production… [paraphrased]” which (the production) the raising of interest rates hobbles.
Beck offered a correct solution—actually THE only possible solution—to the problem, but then went on to make a magnificent blunder, thus dashing my enthusiasm: He excused the Fed’s interest-rate hiking as he proclaimed it to be the means to draw back in the currency so that the Fed could then “burn” it. This is absurd.
The Fed routinely destroys currency in numerous ways. And burning it is one of them. But as I have belabored much already, there is no way to revalue money after the Fed has devalued it by printing empty money—that money which does not represent the production of goods and services.
Reducing the money supply does not add value to the money that remains. The remaining money remains contaminated with the empty money injected into the money supply from all the previous money supply expansions (multiple distinct inflations). The contamination never reverses. The price bid-up merely catches up to the contamination. And the prices bid up exclusively from inflation are never bid back down.
[If you have 10 legitimate one-dollar bills in your wallet and you burn one of them, are the remaining nine now worth more?… No.
If you have nine one-dollar bills in your wallet and you add in another that is counterfeit—and you purchase goods with all of them—are they collectively worth less?… Over time, Yes.
I admit that these analogies are over-simplifications, but they serve the point.]
The Mystery (Mysticism) of Raising Interest Rates
And how does raising the interest rate lead to the destruction of money? Cannot the Fed merely destroy the money without raising the interest rates? This all seems nutty to me. And I’m sure that neither affects the value of the dollar on the street.
Did not the Fed create the empty money out of thin air to begin with? And are we to envision that the wizards of our economy are creating the empty money out the front door as they burn the whole money in the back parking lot?
[Note that I have changed my stance that inflation would best remain at zero. After hearing Milton Friedman explain the shortage of currency as the cause of the Great Depression, I accept that it needs to slowly expand as the population and production of a country grow. I also admit that this still grates against my natural inclination to dismiss Friedman’s take.]
I recently heard one of my favorite pundits—who I disagree with on inflation—mention that the money supply was low. And he related this to the necessity to raise interest rates to curb inflation without acknowledging the fact that the price increases (those specifically from inflation and not from other economic forces) were CAUSED by creating too much money (empty money, of course). Another distinction exposed here and not delineated, I believe, is that the money supply is expanded but simultaneously denied. In other words, there’s an abundance of contaminated and devalued money but the hiked interest rates make it off-limits to those who would like to borrow it. Hence, there’s plenty, but it’s not practically accessible.
The Demise of the Petro Dollar will Cause Hyperinflation in the US…?
This leads to another question, one that I cannot confidently answer: How does the US losing the dollar as the world’s reserve currency affect inflation? [Obviously, this article exposes my profound ignorance (and distrust) about several issues.]
I believe that the demise of the so-called petro dollar will hurt the US economy in various ways although I’m inept to explain the exact mechanisms—largely because I’m ignorant regarding currency conversions and related factors of international trade. However, I’m skeptical that all those dollars coming back home to roost will affect inflation. I have doubts:
If a country like Saudi Arabia, allows purchases of oil with other currencies—which it is already doing—does that mean that it will completely cease to use the dollar? My understanding is that it will merely cease to use the dollar exclusively.
If a country transacts in a currency other than the dollar, does that country use the dollar—if it has some—for other purchases, keep it in reserve, convert it, burn it, toss it in the ocean, bury it, or send it back to the US?
If dollars are somehow repatriated (whatever that means), are these dollars empty money or whole money as I have connoted these terms in my earlier articles? If they are whole money, I suggest that they would not be inflationary and if they are empty money, they would be inflationary. And if they are empty money, would destroying them before dumping them into the general circulation be a reasonable solution?—of course.
I might find answers to these ruminations amongst authoritative sources, but I find it difficult to trust authoritative sources on economics. I have already explained my distrust before. And it can be capsulized with the analogy of trusting a man’s skill with a screwdriver who makes no distinction between a hammer and a nail. Of course, I’m referring to the ubiquitous mistake of misnomering rising prices as inflation.
More on Misnomering
As I have highlighted in my writings on exercise, naming is the first order of business of a language.
Richard Mitchell, the celebrated Underground Grammarian, explained that naming, by itself, does not accomplish anything, but without a thing first being designated a name, we can get nowhere with the telling, the overall objective of language. The telling is the action or doing imparted upon the thing that is named.
If we are to invent a completely new language—and there are many human as well as non-human languages in the world (even disregarding math as a language)—and as we sit in a room, we must first name everything in the room, including ourselves and parts of ourselves. To circumvent this chore would smack of the proverbial cave-man who emerges from his dwelling to emit, “ugh.” What does “ugh” mean? [It means something to us today, but what did it mean to him?] Unless decided and agreed to, it simultaneously means everything and nothing.
[You might recall that in the story about Helen Keller, once Helen understands the idea of language from Anne Sullivan, they excitedly race around the yard and house naming everything accessible.]
We must have distinctions! And if we do not have them, we must make them. And after making them, we must consistently maintain them.
I’m firmly convinced that this is where we are with discussions about inflation by many economists. So, with my rigid intolerance of this specific misnomering (conflation, lack of distinctions) as a foundation of discourse, how do I make allowances for further assertions by the same economists about economic forces with which I’m barely acquainted? I can’t.
Economists are not scientists. Economics is not a science. And regardless of any semblance of science (graphs, charts, spreadsheets, super computers, etc.), the language of these economists is inconsistent and I don’t trust their words. [My personal assessment: Economics is a massive circus of competing PHILOSOPHIES about money wherein the clowns are dressed up in three-piece suits, bow-ties, and Florsheim wingtips.]
Every advance in technology is accompanied by a necessary expansion of the vocabulary. Greater understanding promotes, or is promoted by, progressively sophisticated linguistic distinction. This seemingly occurred in 1838 with the first usage of inflation to mean, exclusively, the expansion and devaluing of the money supply and NOT the increase of prices eventually bid up as the result of the inflation. But thereafter this distinction was reversed. In other words, the distinction devolved to a conflation—a blurring of meaning which serves to promote confusion and deception.
[Of course, the language, itself, can be inflated. Arthur Jones, the inventor of the Nautilus exercise machine, described some of his products as duo-symmetrical, poly-contractile. This, of course, was marketing nonsense.
The insurance industry does something similar with so-called participating policies featuring so-called dividends which are specially defined as a partial refund of a premium overcharge. Amazingly, some insurance salesmen stupidly buy these policies for themselves. These deceitful practices are legal in many states.]
Many Experts Chanting the Same Chorus
Carol Roth, for whom I harbor no ill will, is just one of many experts making this error. Roth, author of You Will Own Nothing (soon to be published), reinforces the odious dual-meaning-of-inflation blunder in the minds of her hosts and audiences during her many appearances with Glenn Beck, author of The Great Reset and Dark Future, as she also does on Redacted with Natali and Clayton Morris. She is a guest on many other platforms.
I believe that Roth is an excellent source of information, but I take it all with a grain of salt. She does know volumes more about the economy and about the US government programs than I do, but when it comes to inflation, the misnomering is blatant. Unless the linguistics have completely failed and misdirected me, I know more about performing a night landing of the space shuttle on an aircraft carrier than she knows about inflation.
So who do I consult about the connection between inflation and the demise of the petro dollar? I’m groping around in the dark.
Firstly, really interesting take on the linguistics of 'experts' and their ideas. This is something which haunts me as I question every sentence of every piece of writng I read now. It is scary stuff but at least we have open places to share our ideas and experiences. It's hard to believe anything when there are so many competing ideas.
Disclaimer, my monetary theory may be gravely wrong. If people stop using USD they have to sell it into other currencies meaning the USD falls in supply. This creates a deflationary effect. On the balance of payments (imports and exports). US exports become more expensive for countries not using the USD as the amount of their currency it takes to buy the same amount of goods/services from the US increases, thus exports wanted from the US economy fall in number. For the US however, importing becomes cheaper as less dollars in supply means each dollar is worth more of external international currency i.e Yuan. This could make importing cheaper and give America a greater buying power on the world market as they have to use less of their total currency to buy the same amount of goods as before.
In the end it's about a fine balance just like inflation. If change in price levels (inflation) is equal to change in real GDP or (growth) then an economy hold's it's value.