Inflation! – Part 2

| 2016-10-09
When the currency supply – the amount of currency in circulation – expands, the result is higher prices in the marketplace. As more dollars are “printed” and enter into circulation, the costs of milk, bread, and gasoline rise. (It is extremely important to grasp this relationship!)

The rise in the price of goods and services is due to having more units of currency chasing the same number of goods and services.

This relationship can be seen in the following two charts. The first chart shows the M2 currency supply. The second shows the Consumer Price Index, which is an index of the variation in prices paid by typical consumers for retail goods and other items.



In the article, Inflation! – Part 1, we showed how inflation destroys purchasing power over time. (Click the text.)

In the article’s example, we described how a Big Mac in 1972 cost $0.65 compared to $3.99 today! This price increase occurred over the course of 44 years. But what happens when a government prints currency at a frightening pace over a short period of time?


Weimar hyperinflation is an example of a financial system breaking down due to a loss of confidence in the currency. In a nutshell, to cover the costs of World War I – including reparations after losing – Germany went to the printing presses to create currency out of thin air. The amount of currency created devastated the marketplace and people’s lives. When all was said and done, a pair of shoes that cost 12 marks before the war cost 30 trillion marks. It’s reported that a loaf of bread went from 0.50 mark to 200 billion marks. The German stock market went from 88 points at the war’s end to 26,890,000,000, but its purchasing power had crashed by more than 97 percent.

The photos below show citizens sweeping currency off the streets and using it to heat homes because it had become so worthless.



The M2 chart above reveals that a massive United States currency expansion is on the way, which means a major loss in purchasing power and increase in consumer prices. However, it is possible to protect your wealth from what’s to come and even benefit from it.

In the third installment of this series, we’ll show how gold and silver act as precious metal “arks” during inflationary mega-storms – and how you can even prosper.

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