Dateline: 13 April 2017
An illustration from, “Inflation is Coming And What You Can Do About It.”
This essay continues a series about Ralph Borsodi and his book, Inflation is Coming And What to Do About It. Click Here to read from the beginning.
Previous posts introduced economist Ralph Borsodi and his book, Inflation is Coming And What to Do About It. I also discussed Borsodi’s vision of numerous small, purposeful communities filled with self-sufficient households. He believed that living in small communities was a “normal” lifestyle, in contrast to residing in cities, which he categorized as part of an industrialized “Ugly Civilization.”
The first part of Borsodi’s book focuses on government debt and inflation. He attempts to simplify these complex subjects using historical examples, particularly from the first half of the 19th century.
He argues that excessive government spending causes inflation. Borsodi compares escalating debt and its resulting inflation to a massive dam, destined to break and harm those living downstream.
He asserts that the government is incapable of resolving this issue and that people should not rely on them for a solution. Instead, he advises individuals to protect themselves and their families by seeking higher ground.
Borsodi’s concerns about debt levels, which now seem incredibly low compared to today’s figures, highlight the severity of our current situation. He mentions that in 1941, America’s national debt was alarmingly high at “$367.68 for each man, woman and child in the United States.”
This amount pales in comparison to today’s American debt burden, which is approximately $200,000 per person. Although the “debt dam” has leaked significantly through inflation since Borsodi’s time, it remains intact, for now.
Published in 1945, Borsodi’s book predates the significant inflation spikes of the 1970s. The US inflation rate in 1945 was 2.3%, jumping to 8.3% in 1946 and 14.4% in 1947 before declining. The chart below illustrates annual inflation rates from 1968 to 1992, with yearly averages listed in the rightmost column.
These figures represent the systematic erosion of Americans’ savings due to government mismanagement, a staggering and immoral theft. However, America has so far averted hyperinflation and the complete collapse of its currency. While we have experienced a decline in purchasing power, our currency has not been entirely destroyed.
Many believe the American dollar has endured solely due to the 1944 Bretton Woods agreement, which established it as the world’s reserve currency. This status has allowed us to accumulate a massive debt. However, global dissatisfaction with the American dollar is growing. Though once a stable currency supported by a robust American industrial economy, this is no longer the case.
The question remains: how long can this debt bubble persist? Is it sustainable indefinitely, or will a reckoning occur? Will this result in hyperinflation or deflation?
Only time will tell if the bubble bursts soon or continues expanding. Borsodi, though correct about inflation, misjudged its timeline.
This concludes my summary of Borsodi’s insights on inflation. The remaining posts in this series will delve into his recommendations for Americans facing the potential collapse of the “inflation dam” and seeking to protect themselves from financial disaster.
Borsodi’s advice from the 1940s remains relevant, perhaps even more so today.
To go to Part 6 of this series