Inflation

I have never been opposed to regulation, although my idea of regulation differs from that of many people in Washington. The free market and its forces of supply and demand are the most effective regulator of the private sector, and have never been known to fail absent government intervention. But piling more public sector regulation on the private sector will have a detrimental effect on the health of our financial system and sow the seeds for the next financial meltdown.

These past few weeks have provided an unfortunate opportunity to discuss inflation. The dollar index has reached new all-time lows. The total money supply, M3, as calculated by private sources, is growing at a disturbing 17% rate. The Fed is pumping dollars into the economy at an alarming rate. Just recently the Fed announced new loan auctions totaling $100 billion. That is new money created from thin air. If these money auctions, combined with the bailout of Bear Stearns, continue to be the trend, we are in for some economic stormy weather. The explanation lies in understanding the basics of money, and why it is dangerous to give government and big banks control over it.

First, money is not wealth, in and of itself. You cannot create more wealth simply by creating more money. Wall Street bankers cry out for more liquidity, but what is really needed is more value behind the dollar. But the value, unfortunately, isn't there.

many Americans have expressed concern over the growing role played by sovereign wealth funds in the U.S. economy. Such fears are to a large extent misplaced, however, as we should be more concerned with the underlying causes that have allowed sovereign wealth funds to accumulate as much capital as they have.

The two major types of sovereign wealth funds are those which are funded by proceeds from natural resources sales, and those funded by accumulation of foreign exchange. The former category includes sovereign wealth funds in Saudi Arabia, Kuwait, and the UAE. Flush with dollars due to the high price of oil, they are looking for opportunities to make that money work for them. The high price of oil is due in large part to our inflationary monetary policy. We have literally exported inflation across the globe, spurring malinvestment and a subsequent commodities boom.