Today on my way home from work I was listening to Glenn Beck. Beck has been correctly pointing out for a year that our government’s massive deficit spending will result in inflation. However, Beck’s draconian views on the subject puthim in a difficult position. He is neither an economist nor a financial advisor. Today I heard him fielding a call from an astute woman. She basically said, “If we are going to have rampant inflation, shouldn’t I increase my debt?” Of course her line of reasoning is that if we have inflation, income will increase. Debt accumulated now, at today’s low interest rates, would become cheap in the future.
Let’s say you currently make $100,000 a year. You take on $10,000 in debt at 5%. In five years, assume we have double digit inflation. In order to keep you, your company increases your pay at a double digit rate, which simply maintains your standard of living. All of sudden the 5% is much easier to handle.
If you take a more drastic view, let’s say 100% inflation, the debt virtually vanishes.
I’m not suggesting we will have 100% inflation but we should be realistic. Hyperinflation has occurred in dozens of countries. We shouldn’t consider ourselves immune.
The following 33 countries have experienced hyperinflation in the last century:
You may have noticed that the United States is not on the list. Well, we make the list if you go back a little further to 1865.
So back to Beck…in fielding this woman’s question Beck was like a deer in the headlights. He gave her a pitiful answer that she needed to be strong and that not going into debt would make her a leader in her community. Please…that’s a pretty juvenile response. Beck was so lost he didn’t know what to say.
I enjoy listening to Glenn Beck. But I can’t take too much of him; mostly because I consider him somewhat of an intellectual lightweight. He has a pretty good grasp on the issues but he doesn’t have unique thoughts. He’s just an avid reader and who draws extreme conclusions. He’s basically a regurgitator.
A better answer would have been, “inflation can also be coupled with unemployment.” “Regardless of your perceived job security, you shouldn’t assume that you will have a job if the economy goes into an inflationary period.” He could have fallen back to his sponsors and said, “It would be safer to invest in gold than to invest in personal consumption of goods.
Beck is working people up into a froth and may not be able to properly manage the movement he is creating.
Note: The most severe month of hyperinflation occurred in Hungary in July 1946 when prices increased by 4.19 quintillion per cent (4,190,000,000,000,000,000%)