It’s because of the belief that a little bit of inflation is a good thing, that we are in the trouble that we face today.  I have said this before, but let me explain.  I bring this up because the inflation numbers for last week came out higher than expected, albeit by just a little, but things are going to get worse as the Fed has announced that it would be worse to raise interest rates right now (which would to some extent slow inflation) and cause more slowing in the overall economy.  Here is why inflation, completely caused by printing too much paper money, distorts all of our decisions and therefore markets.  Inflation creates dual incentives both of which are bad over the long term.

First, since we know that money is going to be worth less, in other words the same amount of money later will buy less stuff; the incentive to buy now is strong.  So if we want a new car and next year's models are going to be more expensive, there is an incentive to buy now.  But since most of us can't pay cash for a new car, we borrow money, worsening our financial condition and taking away from savings.  This is as opposed to doing something logical, like saving up for the car, which is hard because if we do it safely, say in a bank where we earn about 1% right now, we are actually losing money after we deduct inflation and taxes.  So say inflation is about 3% (the "healthy" rate the Fed targets) if we are earning 1% and we subtract 3% we get -2%, so as we save we are actually losing ground - PLUS the car we are saving for rises in price of at least the rate of inflation or in this example, 3%.  So each year we save for the car we actually LOSE 5% in purchasing power for our desired new car!  And then if you deduct the taxes, well, it gets worse!  This is why there is no incentive to save.

But wait, as they say in the infomercial business, there's more!  Even if we are savers and decide to put money away we now know that we need to take risks to earn more than the inflation rate. So we buy things like stocks, bonds, mutual funds, real estate and other stuff, none of which most of us know diddly about.  The normal tendency is to follow the crowd and do what everyone else is, so we invest in the popular thing.  It is just the nature of human beings to go along with the crowd.  This is how bubbles form as when the herd charges toward one thing, recently real estate and now stocks, they drive the price up for a while as there are briefly more buyers than sellers caused by the stampede to buy the thing most of the group doesn't understand.  Let's face it, what most of us knew about real estate before the crash was that it always goes up... until it didn't!  So when reality catches up the bubble bursts and tons of people get creamed!

And now you know more than pretty much every politician and pundit on Wall Street, in Washington, or on TV about why the Fed is the root cause of inflation and every bubble we have to face.  It needs to go.  It is as simple as that.