OPINION: Inflation nation

Then-candidate Barack Obama bemoaned those simple-minded rural folk in Pennsylvania who "cling to guns and religion" in response to economic despair. Since Obama's election, however, Americans have clung to guns like never before. With hyper-inflation looming, a catastrophe initiated by Bush and continued by Obama, guns are thriving and religion may follow suit.

Ari Armstrong, a rock star in Colorado's libertarian community and publisher of FreeColorado.com, recommends an alarming visual exhibit of the nation's growing money supply. Don't look at this if you don't have a strong stomach. It's a graph showing the Federal Reserve Bank of St. Louis' adjusted monetary base, the combined index of Federal Reserve activity pertaining to the money supply (http://research.stlouisfed.org/fred2/series/AMBNS?cid=124). The graph shows the money supply's gradual ascent starting in the early 20th century until now. In 2008 the graph shoots straight up in the air, revealing a one-year inflation of the cash supply that equals its growth over the past 100 years.

This may be an economic tsunami rolling toward us with little warning. The new money has no nexus whatsoever with the country's economy, which is comprised of the goods and services produced, bought and sold by humans. As this money supply has grown, the economy has contracted. This means the value of cash can only plummet. George Mason University law professor Todd Zywicki, who specializes in economics, explained on his blog that consumers haven't felt the inflationary effects of the inflated money supply only because of hoarding, brought about by economic fear.

"Why has this incredible boost in the money supply had no impact?" Zywicki asked.

"Presumably because the ‘velocity' of money has remained low - people and banks are hording money, rather than spending, borrowing, and lending it. Assuming velocity rises again, however, we may be looking at an inflationary spiral like we've never seen before in this country."

The late economist Henry Hazlitt explained in 1946 that the temptation of an inflationary monetary policy "rests in that of confusing ‘money' with wealth." Adam Smith taught us the two are not the same: "That wealth consists in money, or in gold and silver is a popular notion which naturally arises from the double function of money, as the instrument of commerce, and as the measure of value."

Hazlitt explained the danger of the confusion: "So powerful is the verbal ambiguity that confuses money with wealth, that even those who at times recognize the confusion will slide back into it in the course of reasoning ... to many the conclusion seems obvious that if the government merely issued more money and distributed it to everybody, we should all be that much richer ... when hyperinflation has once set in, the value of the monetary unit drops at a far faster rate than the quantity of money either is or can be increased.

When this stage is reached the disaster is nearly complete; and the scheme is bankrupt."

He explains the human behaviors, initiated by inflation, that lead to economic collapse: Inflation "discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce.

It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse."

With that in mind, remember the St. Louis graph. Recent years of an inflationary monetary policy have led to the squandering (corporate jets, wasteful CEO wages, hedonistic parties, etc.), gambling (Bernie Madoff schemes, investment mania, multi-billion dollar bailouts) and reckless waste of all kinds (billions in bonuses for CEOs who've lost billions). Then consider that our money supply has been inflated more in the past year than in the past 100 years combined. When the money begins to circulate, inflation may rage out of control. Totalitarian controls could become widely attractive - not for prosperity, but for the sake of stability and peace.

Wall Street senses how government cannot simply print and spend us out of this recession. It has no confidence the policies of Congress and President Barack Obama will allow for prosperity, so liquidation is under way and it is fast and furious. Stocks ended Thursday at a 12-year low, and some analysts believe the bottom is nowhere in sight.

Not surprisingly, fixed assets such as gold, silver, and guns have been on the rise. While the S&P has fallen 26.2 percent since Obama's election, the value of Smith & Wesson stock has risen 42.3 percent. Stock analysts CL King & Associates recently upgraded shares of gun maker Sturm, Ruger & Co. from "strong buy" to the rare high confidence rating of "accumulate." Sturm, Ruger & Co.'s revenue increased 81 percent in the fourth quarter.

Gun values are through the roof because the public harbors an unprecedented lack of confidence in the country's economic future. Deutsche Bank analyst Grant Govertsen said soaring firearms sales link directly to fears of looming federal gun restrictions (read: "totalitarian controls," as Hazlitt warned).

With possible economic catastrophe looming, one in which cash has little value, guns and religion will likely have great appeal to millions of Americans - not just those rubes in western Pennsylvania whom Obama insulted.