Aftershock: Protect Yourself and Profit In The Next Global Financial Meltdown, Second Edition

The Deeper Causes of Inflation

Before we leave this inflation chapter and move onto the final fall of the dollar and government debt bubbles, we’d like to give you a broader perspective on what we believe are the underlying causes of this inflation. We’ve already given you the technical and proximal cause of inflation, which is massive increases in the money supply well beyond the growth rate of the economy.

But there are deeper causes of this inflation, as well. What economic forces have driven ours and other governments in the last 50 years to increase their money supplies so massively and so fast? To put it in three simple words, it’s a “failed tax system.” By failed tax system, we mean a tax system that does not collect enough taxes to cover government expenditures. Of course, you could also say the problem is not due to taxes being too low, but due to spending being too high. That’s probably more the case in many countries. But, in many countries, which have the highest inflation, their tax systems are so corrupt or so arbitrary as to be completely ineffective. Either way, whether it’s too much spending or too corrupt a tax system, the government isn’t collecting enough money to cover its expenses and hence resorts to inflation instead of reforming its spending and taxation systems.

This has happened many times in European countries, like Italy and Turkey, or in many South American countries. These countries have tax systems in which many people avoid taxes by using the black ...