Part of the Federal Reserve’s original stated purpose was to manage the nation’s money supply without inflation or deflation.  This is to be maintained through various monetary policies.  Now the Federal Reserve Bank of Chicago’s President Charles Evans is advocating for inflation.  He is calling for higher inflation than the normal target of 2%, while NY Fed President Dudley is calling current levels too low because it causes slow nominal income growth.

Dudley thinks “that less of the needed adjustment in household debt-to-income ratios will come from rising incomes. This puts more of the adjustment burden on paying down debt.”  Which means that he would like to create enough inflation that incomes will rise nominally (key word) therefore making it easier for Americans to pay for current debts.  The fear of this type of economic policy is that the more money we print, the less likely other nations will be willing to lend to the US.  Ultimately US dollars will come home to roost in the US and it will lead massive amounts of inflation.

Bernanke in a recent speech at the Annual Meeting of the Rhode Island Public Expenditure Council in Providence stated that he believes that our current state of government finances is “unsustainable.”  He further stated that “unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit.  One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.”

If the changes are too rapid, ultimately it could lead to hyperinflation which would make us all billionaires or even trillionaires.  But this is not true wealth; in fact it is just the opposite.  Bread will cost billions of dollars; all daily essentials will be extremely expensive.  One way to protect yourself from this is to own gold and silver which have a tendency to keep up with inflation.  Take Germany from 1919 to 1923 for example.  170 Deutsche Marks bought one ounce of gold in 1919, but by 1923 it took 87 trillion Marks to buy the same one ounce of gold.  Those with true wealth will be those that bought gold and silver before hyperinflation or monetary collapse hits.