Bush, Congress, Fed, All Hapless to Stimulate Economy
-by Woopadeedoodah
Robert H. Hemphill, former credit manager for the Federal Reserve Bank of Atlanta, once said, “Money is the most important subject intellectual persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it is widely understood and its defects remedied very soon.”
Even though the U.S. economy is sailing into murky waters, the most senior democrat congresswoman of the Federal Appropriations Committee couldn’t pick the Federal Reserve chair, Ben Bernanke, out of a lineup. A congressional hearing was held on Thursday, January 17th, by the House Budget Committee to discuss the near-term economic outlook of the United States. U.S. Congresswoman Marcy Kaptur was prepared to ask hard hitting questions to the U.S. Treasury Secretary, Henry Paulson. Too bad she was questioning the chairman of the Federal Reserve, Ben Bernanke. “Seeing as how you were the former CEO of Goldman Sachs …” After a moment, Bernanke interrupted Representative Kaptur responding: “No, no, no, you’re confusing me with the Treasury Secretary.” Kaptur’s response: “I’ve got the wrong firm? Paulson, Oh, OK. Where were you sir?” Kaptur, apparently still mistaking that Bernanke was formerly in the private sector, was rebuffed in a sarcastic tone, “I was the CEO of the Princeton Economics Department.”
Perhaps Americans should be questioning as to whether our lawmakers have a clue. One would think that our representatives in Washington on the Budget Committee would have a pretty familiar relationship with an entity in control of the United States’ entire money supply. Perhaps our representatives would be more familiar with the chair of the Federal Reserve if our lawmakers were allowed access to what goes on. As it stands, U.S. lawmakers are not allowed to witness any inner workings of the Federal Reserve. The House is only allowed to see what the Federal Reserve allows them to see, which, as we have seen, is Ben Bernanke and some charts. The Federal Reserve is actually a private entity – it’s about as “Federal” as Federal Express.
Created in 1913, the Federal Reserve is a conglomeration of private banks whose primary purpose is to centrally regulate the economy by mechanisms such as controlling the money supply. When congress spends money it does not have, the Federal Reserve prints that money out of thin air, gives it to congress, and applies interest. This is our national debt. Whenever the economy slows, the Federal Reserve lowers interest rates to give banks more easy credit and easy money. This resulted in our housing crisis. When the Federal Reserve prints up money out of thin air, the result is inflation because more money is in circulation. Inflation equals a decrease in purchasing power, i.e. value, of your dollar.
As the U.S. government, like a person, cannot spend more than it actually has, inflation is needed to create more money to spend and support government expenditures for wars and other government overspending. Recently, the Federal Reserve inflated the U.S. dollar to fund our nation’s involvement during the Korean War and Vietnam. But the Federal Reserve met its match with the exorbitant spending of the Vietnam War. As the Federal Reserve cranked out the bills, foreign investors exchanged their dollars for gold because they did not want to be holding on to a piece of paper which was decreasing precipitously in value.
In 1976, the U.S. abrogated the Bretton Woods agreement and ended the ability of foreign investors to convert their U.S. dollars into gold, removing the last check against inflationary monetary policy.
Gold has always had an intrinsic value throughout history, and as history has illustrated, one will always be able to pay for something with actual gold. For instance, consider traveling back in time to ancient Egypt. It would be wiser to take an ounce of gold rather than a greenback.
The gold standard is a check on an amount of money a government can introduce into circulation. When money was backed by gold, a person holding a U.S. dollar could exchange that dollar for actual gold. Although you may not want to carry around sacks of gold, you could. The reason people did not is because they had confidence that their dollar would always be worth a certain amount of gold. When the government started inflating the money supply, money holders, losing confidence in the dollar, would begin withdrawing actual gold, thus forcing the government to refrain from printing money in excess of the gold available. Today, there is no check whatsoever on the amount of money that is printed.
Without a standard, paper is worthless. Gold is a standard. The only thing backing our money is consumer confidence.
As foreign investors continue to lose confidence in the American dollar, they have begun looking to other stable reserve currencies such as the euro. Today, approximately 63.8% of the world’s reserves are dollars. This percent dropped dramatically from 76% in 2005. One main reason could be the decline of the dollar’s value. The Economist notes that, “…the dollar has lost a quarter of its value in the past five years. Its decline has been especially marked against the euro. At one point in 2002 the euro was worth 86 cents; today it buys $1.48.”
The dollar keeps losing its value because the member banks of the Federal Reserve continually vote to print money. Those who receive the newly created funds first, are those who benefit from it, namely banks. As an analogy for how this works, consider Babe Ruth rookie cards. The reason these cards are so valuable is that there are only a few in the entire world. The Federal Reserve essentially has the power to print new Babe Ruth rookie cards. The first newly printed cards are given to banks. Even though the supply of Babe Ruth rookie cards is infinite, baseball card collectors think that there are still only a few in the entire world! Collectors will pay the same price as if there were only a few. It is not until after several Babe Ruth rookie cards have been sold, and collectors begin to realize there are more than a few in circulation, that the value of the Babe Ruth rookie card decreases. By that time, however, the banks have already profited from the once-valuable market.
This decreasing of purchasing power, and taking a percentage of your dollar away, is a form of theft. The average U.S. citizen is pitted against an evil Robin Hood from a parallel universe – “steal from everybody and give to the rich?!”
Faced with a looming recession triggered by a housing crisis, Bernanke’s plan is to inflate the money supply, increase government spending, and reduce interest rates – the very policies which created the housing crisis. President Bush and Federal Reserve chairman Ben Bernanke are in agreement that what is needed, in the shadow of a synthetically spawned mortgage collapse, is to further synthetically boost our economy with an “economic stimulus package.” Normally one would welcome tax rebates, but in this instance the government will be funding the rebates from money it does not have. Such a policy once again will add to the national debt by creating money out of thin air causing inflation and devaluing the dollar.
Inflation is wrong because it decreases the purchasing power of your dollar. One such example of this is the inflating prices at the pump. Even though the price of oil has remained steady with the price of gold, the U.S. dollar just does not buy as much as it used to. Prepare for value to be pumped out of your wallet by an economic “stimulus” package which will further assault the international community’s already waning confidence in our dollar.
(4, 4 votes)
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I remember when we both were not too convinced or passionate about gold. Looks like RP has changed our minds a little.
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