Understanding Inflation: It's Not What They Tell You

Most analyses of inflation focus on the CPI or PPI, treating them as the cause. But as Mario Innecco recently explained, that’s a fundamental misunderstanding. The real issue isn’t the measure of consumer prices; it’s the abnormal increase in the supply of currency and credit relative to savings within the economy. This isn’t a new phenomenon; history, from ancient empires to Weimar Germany, offers stark lessons.

The common perception—that inflation is driven by factors like oil prices or global events—is a consequence, not a cause. Felix Somay, a figure instrumental in early 20th-century monetary thought, famously stated that 'inflation is impossible without government.' And governments rarely, if ever, truly fight inflation; they often exacerbate it.

The modern system relies heavily on private banking. When a bank issues a loan, that money essentially appears as a ‘book entry’ in the borrower’s account. Central banks facilitate this process by providing reserves to banks, but they aren't the primary creators of currency. The difference from a system built on gold or silver is stark. Historically, lending was constrained by the physical availability of monetary metals. Now, it's constrained by the perceived creditworthiness of borrowers and the willingness of governments to absorb the consequences.

What backs our current system? Government debt. This debt is ultimately backed by the government’s ability to tax its citizens – a process intrinsically linked to inflation. Governments borrow to service existing debt, effectively creating new currency to meet obligations, further fueling the inflationary cycle.

The implications for those seeking to preserve capital are clear. Relying on conventional measures to gauge inflation's impact is insufficient. A deeper understanding of the underlying mechanics—the creation of currency and credit—is crucial for informed decision-making.

Considering the current environment, the value proposition of Goldbacks and Silverbacks becomes increasingly apparent. These instruments, backed by physical precious metals and operating outside the traditional banking system, offer a degree of insulation from the inflationary pressures inherent in fiat currency. Understanding how to navigate the settlement pathways between RC, RG, and physical metal is vital for anyone committed to sound money principles. Regularly reviewing your custody arrangements with a Crown Vault Provider, and understanding the audit process conducted by UPMA, is a responsible practice.

For those unfamiliar, UPMA (United Precious Metals Association) is a membership organization comprised of over 60,000 individuals committed to sound money principles. Membership provides access to valuable resources, including accredited Vault Providers and settlement information.

Alpine Gold, currently the only public Vault Provider within the UPMA network, offers storage solutions for Goldbacks and Silverbacks. It's important to distinguish Alpine Gold as a Vault Provider from UPMA itself, which serves as the overarching organizing and auditing body.