Fed Running Out of Options. Now Calling for More Debt Based Inflation

When an economy is based on debt like every central banking based financial system on the planet, it has been shown to eventually fail. This is a historical precedent, not a prediction.

It is not a statement of prejudice towards central banking and fiat currencies, it is a historical reality that has happened to every irredeemable currency that has come into existence until now. We are talking thousands of years of history btw not just modern times.

So can we expect the same to happen to the Federal Reserve note? I predict that it is as inevitable as a sun rise or set. According to an article in the New York Times on Saturday 10/26/13:

 

“Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.

The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.”

The federal government expects inflation to ease the burden of its debts. Yet by one measure, inflation rose at an annual pace of 1.2 percent in August, just above the lowest pace on record.

“Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about,” Kenneth S. Rogoff, a Harvard economist, wrote recently. “It should be embraced.”

 

Voodoo Economics Revisited?

Here are some of the fallacies in the statements above.

  1. The Federal Reserve has not worked for decades to suppress inflation. The Federal Reserve is  the primary cause of inflation. Inflation is the result of excess currency in circulation which means a whole lot of $ are chasing too few goods. Naturally, the prices of goods will rise as the dollars to purchase them lose value and more of them are required to make up for it. Since the advent of the Federal Reserve the dollar has less than 5 cents of its value in 1913 when the Fed began. Inflation has steadily eroded its purchasing power. According to the BLS CPI inflation calculator $1 in 1913 has the same buying power as $23.62 today and that is based on government calculations which are decidedly biased to make itself look good.
  2. Borrowing and spending money quickly fuels inflation. A quick study of any hyperinflationary period such as what happened in Germany after WWI demonstrates that people rushed to buy anything of value they could as their currency lost its value. The more frantically the money was spent, the more significant became the inflationary value of the money. Eventually, wheelbarrows of money would not purchase anything. One story is that someone left a wheel barrow of Reich marks outside a store and returned to find the currency on the sidewalk while the wheelbarrow had been stolen. That’s what happens to a hyperinflated currency. It eventually returns to its intrinsic value.
  3. It is an illusion to equate currency with economic growth. An economy and jobs grow in response to real market based demands. Unless there is an actual need being responded to any growth that results from fiat currency being pumped into a market segment will result in a bubble being created. We saw that with the tech stocks, housing, the equity markets etc. They all eventually burst leaving disappointment in their wake. The debt bubble is the next big one being created. It will inevitably correct as well. The devastation in its wake will touch all of us.
  4. Inflation is not rising at only 1.2%. That is a deception. According to Bureau of Labor Statistics, in the decade ending in 2012 milk rose 26%, bread 39%, peanut butter 40%, steak 41%, electricity 42%, turkey 56%, eggs 73%, apples 43% and more. Left out of the CPI inflation calculation is food and energy costs because they are “too volatile”. If a good or service spikes it can be thrown out of the calculation under the pretense that it reflects passing market disequilibrium. In other words, the things we deal with the most or which have the greatest impact on our spending patterns are not figured in. The real inflation rate is much higher than portrayed.

Former Treasury Secretary Redefines Basic Accounting Principles

Larry Summers, former Treasury Secretary and long term member of the CFR, stated on NPR recently that the national debt “is an asset we owe ourselves.” Uh, Larry excuse me but when did debt become an asset? Isn’t it a basic rule of summers282wayaccounting that debts are liabilities? Whew, talk about voodoo economics!

Additionally, over $5 Trillion of the $17 Trillion of this debt is owed to foreign nations with the 2 largest being China ($1.3 Trillion) and Japan ($1.1 Trillion). Does that count as being owed to ourselves?

And these are our experts? Is it any wonder that we are Trillions of $ in debt with cartel cheerleaders like Summers posed as experts? Not!


Leave a Reply