What is inflation?

Inflation means the increase in the supply of fiat currency caused by the central bank printing (counterfeiting) currency to buy bonds, thus reducing the yield (effective interest rate) and increasing the bond price. Reducing interest rates reduces the Capitalization Rates for assets that are financed by debt, mainly commercial income property. Reducing the CAP rate increases the Capitalized Property Value (CPV), thus hiding the insolvency of the central banking system. If CAP rates were to increase, then the CPV would decrease, thus triggering a technical default on the commercial mortgage loans that exceed their Loan to Value ratio limits. Lenders would be forced to “extend and pretend” that the mortgage was not in default, causing a chain reaction throughout the financial system. Lenders positioned themselves somewhere within the tranche chain through debt re-hypothecation and cannot meet their redemption obligations, causing a domino collapse. This is what happened in the 2008 crisis. The US Dodd/Frank legislation focused on the symptoms (increasing risk by reducing qualification for the borrower and the property), instead of the underlying cause (the inherit flaw in central banking with fiat currency).

Inflating the currency supply dilutes the purchasing power of the currency, thus increasing the prices. The real concern is the insolvency of the central banking system caused by the same mechanisms that caused the 2008 crisis. Central banks cannot afford to allow interest rates to float according to the free market demand, or else the system will collapse again due to deflation of asset values caused by rising interest rates.

When real money (backed by gold and silver) was replaced with fiat currency (backed by nothing), the “store of value” was lost. Currency is now merely “distilled work”. Printing fiat currency without the investment of productive work in the general economy is counterfeiting, which is theft. That’s why governments outlaw counterfeiting, except for themselves. Gods and governments hate competition.

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