Inflation and the Decline of the Dollar

Money is one of the most important inventions of humankind. Without it, a complex, modern economy based on division of labor, and the consequent widespread exchange of goods and services, would be impossible. Over the last year the value of the US dollar has dropped significantly and inflation has continued to rise. As good stewards, and good Bible scholars, we feel it is important to understand the impact of rising inflation on our lives as well as its role in Biblical prophecy.

When economists talk about inflation, they are usually referring to a rise in the prices of goods or services. In reality, inflation is an increase in the total amount of money in circulation, which causes it to decrease in value, thus resulting in rising prices. The price rise is the result of inflation, not inflation itself.

This month the US Congressional Budget Office (CBO) released The Budget and Economic Outlook: Fiscal Years 2006 to 2015. The report stated that "the dollar has been falling for three years; since its peak in the first quarter of 2002, it has lost almost 14 percent of its value." Furthermore, the CBO expects the exchange value of the dollar will continue to decline during the next two years.

The core inflation rate, which ignores food and energy costs, rose 2.2 percent in 2004 compared with 1.1 percent in 2003. Overall consumer prices rose 3.3 percent last year, up from 1.9 percent in 2003. Energy prices increased 16 percent in 2004. The cost of clothing, electronics and other products has stayed flat or declined in recent years, primarily because of the availability of low-cost goods from China and elsewhere. However, in service related industries - which are impacted very little by the global market - prices have risen at a much faster pace. College tuition and fees are up 42 percent over the past five years, a period in which overall prices have risen 13 percent. The costs of medical care and personal services are also rising much faster than inflation.

Increased inflation and the decline of the dollar have various Biblical implications. It could open the door for a common world currency. It is also consistent with the Bible's description of the end times. The black horseman of Revelation 6 calls our attention to, not just famine at the onset of the Tribulation, but also to an economic condition where a man's daily wages are so small, he can barely support himself much less his family. What kind of condition would produce that? The answer is one which has emerged today and which, for the first time in the history of mankind, is for all intents and purposes universal: monetary inflation.

For more information on inflation, the history of our monetary system and financial institutions, and what the Bible has to say about it see our topical study Behold a Black Horse.