“To finance the government deficit, the Treasury now sells bills and bonds at a rate of about $120 billion a month, or about $1.5 trillion per year. But this new Fed-created money, which finances the government deficit, is not associated with any production of new goods and services. Thus, total monetary demand, or purchasing power, exceeds the existing supply of goods, equities, and services at prevailing prices, with the predictable result that prices rise."
Inflation enriches the fatcats...
At home, bankers and speculators have been and are the first in line, along with the Treasury, to get zero interest money and credit from the Fed. They are first to get bailed out. Then with new money, they finance stocks, bonds, and commodities, anticipating, as in the past, a Fed-created boom.Being first in line has its advantages. So the fat cats get the new money first, before the inflationary effects kick in, giving them maximum purchasing power...
Prices rise first for the most volatile goods, especially stocks, commodities, and financial claims, because they are relatively liquid vehicles for speculators and banks. This is the story of the past two years, with stocks and commodities advancing amidst a sluggish U.S. economy. This is also the story of postwar Fed-created booms. Each cycle experiences an inflation boom, often in different assets, e.g., Internet stocks in the late ’90s and real estate in the last boom and bust.”After the fat cats have their investments safely locked away, the inflation trickles down to the rest of us, eroding our purchasing power and our savings. Yeah, you can buy into the bubble, but the previously steep curve is already starting to dampen by the time your average Joe Schmo has a chance to get in on it.
But middle-income professionals and workers, on salaries and wages, and those on fixed incomes and pensions, are impoverished by the very same inflationary process that subsidizes speculators and bankers. Those on fixed incomes will likely earn very little or even a negative return on their savings. Thus, they save less.It’s a rigged game, and those manipulating OUR US Currency control the game…
The inequality of wealth and privilege in American society is intensified by the Fed-induced inflationary process.
The subsidized banking and financial community, along with the chaos of floating exchange rates and an overvalued dollar, underwritten by China and other undervalued currencies, has submerged the American manufacturing sector, dependent as it is on goods traded in a competitive world market.
In a word, the government deficit and the Federal Reserve work hand in hand, perhaps unintentionally, to undermine the essential equity and comity necessary in a democratic society. Equal opportunity and the harmony of the American community cannot survive perennial inflation.We can dream of demolishing the Fed’s printing presses, or we can demand that the dollar again be pegged to something tangible, like gold, and convertible upon demand. Or you can just sit there while your savings is stolen by the government.
All quotes taken from Lewis E. Lehrman's Weekly Standard article, Fiat Money, Fiat Inflation.
For those of you who do not understand currency and what the fed is doing, read this very informative article by Seth Lipsky, The Floating Dollar as a Threat to Property Rights. He does a great job breaking it down for us non-economists.
16 comments:
Here's a question:
Why is the interest rate so low for those of us savers who have long used interest from certificates of deposit and money market accounts to supplement our incomes?
Always on Watch, the interest rates are low because they are a reflection of the economy and inflation in general.
Actually, the wealthy hate inflation. That's why we've been fighting it over all other things since the late 70's. The Fed, the Treasury, the banks, all work together to maintain a certain level of unemployment, and to keep the general standard of living flat with a certain level of trade.
While the dollar has dropped abroad, domestic inflation has been historically low and flat since the mid-80's. So, the conservative powers-that-be got what they wanted and blamed all realted pit-falls on the "liberals" who had no power in the matter, all to the delight of idiotic Republican and mainstream Democratic voters dumb enough to vote against their own interest.
Yes there are types of inflation that the wealthy enjoy and that we suffer, but overall domestic inflation is something they abhor. Personally, I think we should probably be having more inflation as that would be the result of a freer market. I think our war on inflation - starting with Volker, and perfected by Greenspan - has been too successful, obscuring serious realities of the markets, and stifling the growth of the middle class.
Remember, in a healthy, growing economy, inflation is the natural result of more people making more money. Inflation acts as a check on unhealthy, unmitigated growth, especially in high risk markets.
"...the Treasury now sells bills and bonds at a rate of about $120 billion a month, or about $1.5 trillion per year. But this new Fed-created money, which finances the government deficit, is not associated with any production of new goods and services."
I think you need to understand what bonds are for. T-Bills are another matter. Bonds are not used to service debt - they are the debt. They are used to pay for government projects, which create many, many jobs, both in the short term and by creating the environment for private investment for the future.
We issue bonds because these projects are of benefit to the taxpayers of the future, as would say a new highway. Therefore we expect future taxpayers to help pay the bill.
The bond market is not doing relatively well now because of a number of factors, but the issuances themselves are not really at the heart of the problem. Just the same, the bond market remains safe and stable for the foreseeable future.
JMJ
I commend you for your tolerant comment policy.
Excellent article. The Fed's monetary policy and our governments fiscal policies have made American businesses much less comptitive in the world. The result is loss of jobs. The Fed's policies are designed to cause inflation and the boom bust cycles. We the people pay the price. We have to take back control of our government by electiting true conservatives and then we must get rid of the Fed.
Conservativesonfire: Thanks. Jersey gave us the classic Keynesian explanation that has brought us to this catastrophic point. If currency is tied to a fixed peg and government stops manipulating the market, inflation is indeed NOT inevitable.
This is the fatal progressive conceit: That a klatch of pointy-headed "experts" can better manage a market than can free people and natural market forces. The past one hundred years has exposed this conceit for the pipe dream that it is.
AOW: It's called cheap money. Interest is what a bank pays you to use your money. With the fed turning on the monetary firehose, they really don't need your money, so they pay you nothing for it.
Jersey: You are arguing with the investment banker who wrote the article, not me.
I think Mr. Lehrman has a little more credibility on the issue than you do.
You did do a good job of standing up for the callous disregard for the work class. Gotta congratulate you there. This erosion of the dollar's value by the printing press is a silent tax and it is nothing short of legalized theft.
But who gives a damn about the working and poor and people on pensions? It's all part of "progress," right?
Lehman is hardly an objective observer. I trust guys like Lehman as far as I can throw them.
I'm not standing up for Wall Street. Quite the opposite. I don't how you got the idea that's what I meant. I'm simply pointing out that things are not always what they appear to be.
The Fed most certainly doesn't "cause inflation." That's stupid. Fighting inflation has been their number one prerogative, to the negligence of everything else, since Volker.
We have a lot of serious, system problems, but inflation is not one of them. If anything, I would argue that the inflation rate is artificial and probably too low.
As a bunch of "capitalists," I thought you guys would understand my point.
JMJ
cowboy poetry anyone?..yes take back our Nation indeed Silver~!
"We can dream of demolishing the Fed’s printing presses, or we can demand that the dollar again be pegged to something tangible, like gold, and convertible upon demand."
That's the best idea I have heard!! If only it would be implemented.
"This is the fatal progressive conceit: That a klatch of pointy-headed "experts" can better manage a market than can free people and natural market forces."
Excellent point and well-said, Silver. Progressive regulation and manipulation of our free markets while convincing liberal supporters that the regulation will improve their lives, financial situations and also boost the economy is truly despicable.
Ugh...
The Fed doesn't even have the printing presses. C'mon guys! The Department of the Treasury makes the currency. ALL of the profits from Fed lending then go back to the Treasury - We the People.
Yes, I agree, in a way - I do not like the MO of the Fed in general. If we're going to have a central bank, I believe it should be part of the Treasury. Otherwise, we shouldn't have a misnomered "Fed," and the Treasury would lend directly to the banks anyway, and we would de facto have a central bank anyway.
In other words: WE ARE ALWAYS GOING TO HAVE SOME KIND OF CENTRAL BANK.
So, what do you want?
If you believe the government should not print notes at all, then fine. Dream on. You may as well ask to go on to haggling with chickens and shiny rocks at the bazaar.
If you believe notes should only be printed against some commodity (like gold), then fine (just don't complain when the price of gold changes, and Lord knows it doesn't always go up in the middle-to-short term). You have an interesting argument. Just explain to me what we do when the price of gold flucuates, as it always does, especially when some government floods markets in a dire time.
Or are you proposing old Roman currency! Okay. But remember - it was the Romans themselves who invented lower carats to stamp more coins and to reneg on their promises to their creditors, and of their good name!
Guys, it's okay to be a libertarian, but at least get the facts straight. Don't believe in silly myths like "the Fed’s printing presses." It's really not all that simple - or complicated. Read about it.
JMJ
Oops!
"and the Treasury would sell directly to the banks anyway,"
Oops!
JMJ
Printing money faster than the economy is growing does indeed cause inflation, Jersey. Go do your homework.
I don't give a damn if you trust Lehrman or not. Unlike you, he understands banking and the economy.
Silver, you are taking the word of a man who doesn't believe in anything you do.
JMJ
It's not "taking someones word." It's reading what's presented and using your brain to evaluate the information.
He is not saying anything new or novel. This is standard economics.
I note that you have no facts or contravening information to rebut what he is saying.
Anyway, keep shilling for those Wall Street fatcats who get rich off this scam while my granny's bank account and pension shrink.
It's not "standard economics." I don't know what "standard" you mean.
What I'm talking about is well known and accepted by many economists and such. But not only that - HISTORY! You can't refute ANY FACT I presented - like inflation being historically low for the past thirty years.
JMJ
Jersey: OK. Then I assume you'd accept the standard wage from 1980?
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