Have you noticed the price of EVERYTHING going up ... FAST? That's no accident and it's not the result of something some other country is doing to/about the products and raw materials we buy from them. WE DID THIS TO OURSELVES! Or, more to the point, The Fed did this to us.
About four months ago, Democrats (congress and the White House) gave The Fed the okay to increase the money supply by buying back some governement debt (ie, treasury bonds). The liberal philosophy about this sort of thing is that increasing the money supply injects life into a sluggish economy. That may be true in the short-term but it isn't long before it causes a worse problem ... inflation.
In my opinion and that of many, many economists this cure is worse than the disease. There are at least a couple of interesting facts associated with this that average Americans need to know because when we let them get away with this nonsense, they don't tell us the truth. We need to know what they're doing so we're properly armed to stop them from doing this kind of nonsense.
First, we need to understand where The Fed gets the money to 'increase the money supply'. Hint: although I always thought they did, they are NOT actually 'printing' money with which to buy back treasuries. That will probably surprise a lot of folks. It did me. Last Fall I heard (and believed) that The Fed was "starting to print lots of money". They didn't do that but they DID increase the 'money supply'. Turns out they no longer have to print actual money to increase the 'money supply'.
Fact is, most of our country's money doesn't exist as hard currency. (I knew this but I didn't know how The Fed 'increased money in circulation'.) Most of it is 'electronic money' ... banks passing credits (the electronic equivalent of actual money) back and forth without actually moving hard currency. Basically, one bank gives to another bank a kind of IOU (a 'credit') which they, in turn, pass to some other bank. The banking business exists only in the form of credits and debits they pass around among themselves as compensation for given transactions. (In fact, if everyone in the USA used only credit and debit cards we wouldn't need paper money at all but that's a subject for another day.) Back to The Fed now.
So The Fed takes ownership of treasuries from a bank and, as payment for those treasuries doesn't give the bank actual money but, rather, pays them in 'credits' which they can use to make loans or buy some form of investment. These credits The Fed gives to banks are completely created out of thin air, just as if they had printed money. It seems to me that The Fed would just as soon eliminate actual money and have all purchases and sales done via electronic credits.
So, while The Fed isn't actually printing money, they ARE doing the electronic equivalent of that ... creating 'money' out of thin air ... out of electrons actually that are running around inside all our computers. So, for argument's sake, when The Fed says they're increasing the money supply or, as it is euphemistically known, "Quantitative Easing" ("QE2" was the latest round which began last November) they are doing the electronic equivalent of printing actual money. Either way, it comes out of thin air! QE2 devalued our dollar just as surely as if they had printed actual dollars. It puts more 'electronic dollars' into circulation which THEY think helps the economy. But it DOES devalue the dollars that existed before they did the QE2. Then comes inflation. Every time! (To understand this, consider what the painting Whistler's Mother is worth. Now imagine that five more had been painted just like it. Now how much would each one be worth? Ans: a LOT less than just having one.)
This electronic Quantitative Easing does indeed cause inflation. If you doubt it, look what's been happening with the prices of ALL 'stuff'' the past couple of months since The Fed started doing this QE2 (increasing the electronic money supply). Price of gas: up A LOT. Price of food: Up considerably. Price of clothing and just about everything else: up significantly. The price of gas is NOT going up because Middle East countries increased the value of their oil. They ARE charging us more but it is because all this artificial increase in our (electronic) money supply has devalued the dollar in international trade. It now takes 10% more dollars to buy a gallon of oil than just before The Fed started QE2 and, therefore, devalued the dollar. That's in just four months! Are you ready for Jimmy Carter type inflation? You'd better be because it may be coming if congress doesn't fix our economy soon.
Does this sound familiar from an environmental standpoint? As in "carbon credits"? Maybe they're just as fake (regarding reducing carbon emissions) as dollars are to banks and The Fed? Hmmmm. Another subject for another day perhaps.
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