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Posts Tagged ‘Inflation’

Eccles_2

The Marriner S. Eccles Federal Reserve Board Building in Washington D.C.

“[T]he Fed has one power that is unique to it alone: it enables the creation of money out of thin air.”

    – Ron Paul, End The Fed

The welfare state, the warfare state and the loss of liberty.

Inflation, extreme income inequality and the destruction of the middle class.

Exploding federal debt, skyrocketing federal deficits and a financial system on the brink of failure.

What do all these things have in common? To one degree or another, they are all the effects of the Federal Reserve System, more commonly known as the Fed, America’s central bank.

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Financial Crisis
A prudent man foresees evil and hides himself, but the simple pass on and are punished.

    Proverbs 22:3

It’s been a couple weeks since my last posting in this series, but there certainly has been no break in the flow of events. In the intervening time since my last entry on 10/20/19, there have been several noteworthy bits of financial news. Of those, the most important was the announcement from the Fed this past Wednesday that they had decided to lower the Fed Funds rate another quarter point. This was the third time the Fed has lowered interest rates in the past three months.

Now any such decision by the Fed is important given the tremendous power of the Fed to push financial markets one way or the other. The big takeaway, however, is what this decision says about the Fed’s assessment of the economy. Despite all the propaganda from the administration saying the economy is doing great, the decision by a the Fed, or any other central bank, to lower interest rates is a tacit admission that the economy is not doing well. If the economy were doing well, the Fed would be raising rates, not reducing them.

When you add to the Fed’s lowering of interest rates the ongoing (permanent?) bailout of the overnight repo market and the restart of quantitative easing (i.e. money printing), it is obvious that the those closest to the situation think that the economy is seriously struggling.

One of the justifications put forward for lowering interest rates and money printing is that there is no price inflation. But even according the Consumer Price Index (CPI), the official measure of price inflation put out by the Bureau of Labor Statistics, the CPI-U (the broadest measure of inflation) rose 1.7% for the period September 2018 to September 2019. But beware of official government statistics! Over the years, the federal government has changed the way it measures inflation. And it should come as no surprise that the change has been in the direction lowering reported inflation.

Economist John Williams runs a website called Shadow Stats where he purports to calculate inflation the old fashioned way. His most recent calculations of the CPI-U tell a very different story from the figures put out by the Bureau of Labor Statistics (BLS). As you can see Williams most recent numbers come in a little higher than those of the BLS. According to Williams, the official method of calculating inflation used prior to 1990 shows inflation running at a more than 5% annual rate. If you look at this calculations with the pre-1980 method, the difference from the current official number is even more striking. The pre-1980 method of calculating inflation indicates that the current inflation rate is almost 10% annually!

If Williams is even close to being right, all this latest round of money printing by the Fed is like dumping gasoline on a raging fire, meaning we can expect to see much higher inflation numbers going forward.

Here’s a critical idea to keep in mind when talking about price inflation: Inflation is always and everywhere a monetary event. By this I mean that inflation is always the fault of money printing by central bankers. You can watch the evening news faithfully for decades on end and you will not hear this. Ditto with the financial channels such as CNBC and Fox Business. They will never tell you the simple reason for price inflation: Central bank money printing.

Why is this? It’s not an accidental oversight. The mainstream press is essentially the propaganda organ of the establishment, and central bank money printing is the financial black magic the establishment uses to increase its wealth and power at the expense of ordinary Americans. The powers that shouldn’t be – Washington politicians of both parties, Wall Street bankers and big shot investors together with a gaggle of academic theorists and news media talking heads – have a great scam going and do not want to let ordinary Americans know how badly their being ripped off and by whom.

To borrow a turn of phrase from Warren Buffett, “If you’ve been playing poker for half an hour at the table and you still don’t know who the patsy is, you’re the patsy.”

Ordinary Americans have been the patsies of the financial elite, of whom Warren Buffett is one, since the founding of the Fed over 100 years ago. The Fed’s inflation games are not only bad policy, they are also sinful in the eyes of God. The Bible unequivocally condemns “divers weights and measures” which God calls an “abomination” (see Proverbs 20:10 and 20:20 for example), which merchants of the day used to rip people off in much the same way central bankers, politicians and their super wealthy clients do today. It’s high time people woke of to this fact. End the Fed!

There’s much more that could be said about inflation and, Lord willing, I shall discuss this topic in greater depth in the future. For now, though, it is enough to know that 1) the cause of price inflation in money printing by the Fed, 2) the current method of measuring price inflation deliberately and significantly understates its true rate and 3) these facts are not reported in mainstream news outlets in order to keep the public in the dark about what is going on.

“So what,” you may ask, “does any of this inflation talk have to do with financial prepping?” Quite a lot, actually. If we understand that a falling dollar is the product of the Fed’s intentionally increasing the money supply too fast, we are positioned to understand ways of protecting ourselves against the ravages of price inflation.

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“The greatest threat facing middle and working class Americans is our depreciating paper currency.”

    – Ron Paul

Gold, Peace, And Prosperity, The Birth Of A New Currency
by Congressman Ron Paul (Auburn, Alabama: Ludwig Von Mises Institute, 2011, 91 pages with index).

There is, perhaps, no more critical subject facing our nation at the moment than the activities of the Federal Reserve, the central bank of the United States of America. But while the Fed’s actions over the past 100 years have had a profoundly negative effect on the lives of nearly all Americans, very few people are aware of the ways in which they are robbed by Fed policy. Even more frustrating from the standpoint of those who believe in sound money is that that there appears to be little desire on the part of Americans to cure their ignorance by studying the machinations of these masters of the universe who run the Fed.

Gold_Peace_Prosperity

One of the principle reasons people remain in the chains of ignorance concerning the Fed is the reporting of mainstream financial journalists. The stories one sees in the mainstream press about financial matters – whether in print or on television, it matters not – seem designed more to steer people away from the truth about the workings of the Fed rather than lead them to understanding.

In stark contrast to the long-winded flim-flam one hears on most news outlets about the Fed, Ron Paul’s Gold, Peace, An Prosperity, The Birth Of A New Currency (hereafter Gold, Peace And Prosperity) is a breath of fresh air. In his typical fashion, Paul manages to be both profound and concise in his comments. This book, a short 91 pages including introductions by Henry Hazlitt and Murray Rothbard plus an index, equips the reader with more sound teaching about the problems with our current Federal Reserve system as well as how to fix it than entire shelves full of books by most authors.

Did I mention that this is a short book? Just to give you a sense of what I mean, it can be read in one sitting. When I re-read it for this review, it took me a little over two hours reading at a leisurely pace and taking notes. As John Robbins noted in his exposition of Philemon, many scholars make the assumption that nothing short can be profound. But this is a mistake. Gold, Peace, An Prosperity stands as proof of this.

Worth noting is that this book was first published in 1981. That is significant for the reason that Ron Paul was part of the Gold Commission convened by President Reagan at the time to study the possibility of returning the United States to the gold standard, an option that ultimately was voted down by the Commission. The next year, the Minority Report of the Gold Commission was published under the title The Case for Gold (see here for free pdf and epub downloads), which is considered something of a modern day classic by advocates of sound money. I would by all means recommend reading The Case for Gold, but I think Gold, Peace, An Prosperity is an even better place to start. While The Case for Gold provides more detail than Gold, Peace, And Prosperity, the latter is less technical in its language and much shorter, making it an ideal read for those just starting to learn about sound money, or, for that matter, those who would like a refresher course from one of the few statesmen of recent times who actually understands the monetary problems we face as a nation as well as what is needed to fix them.

In the first chapter of the book titled “Impending Social Strife?,” Paul writes, “We probably will see widespread civil disorder in the 1980s.” Looking back 38 years, some may be tempted to discount Paul’s argument for sound money by accusing him of being an alarmist. “You see,” they will say, “we didn’t have widespread civil unrest in the 1980s, so all this talk about economic collapse in 2019 is just so much conspiracy theory nonsense.”

What shall we say to this? Does the fact that widespread civil unrest did not occur in America in the 1980s refute Paul’s argument against the Fed and for sound money? No, it does not. While it may seem odd to many today that there was serious consideration of a return to the gold standard in the early 1980s, one has to remember the context. America had just gone through the terrible stagflation – stagflation was a term coined in the 1970s to describe a situation where there was simultaneous inflation and little or no economic growth, a state of affairs that the standard Keynesian economics of that time could not account for – of the 1970s that followed hard on the heels of President Nixon’s decision to take America off the Bretton Woods gold exchange standard in 1971. Just to give you a sense of the inflation of the 1970s, gold went from $35 dollars and ounce in 1971 to around $800 an ounce at its peak in 1980, a surge of roughly 2000%.

Second, all the problems that Paul identified in 1981 with the Fed are still with us today and are far larger than what they were when he first wrote. On October 22, 1981, 38 years ago almost to the day, the federal debt first topped $1 trillion. Today in 2019, it stands at over $22 trillion. According to this CCN article, the 2019 federal deficit – the deficit is the yearly amount by which federal spending outstrips tax revenue; the debt the total of all previous budgetary shortfalls – was $984 billion. Stop and think about that for a moment. It took the federal government over 200 years to accumulate $1 trillion debt, an amount it’s now adding on a yearly basis.

What Ron Paul did not foresee in 1981 was the cunning ruthlessness of the central bankers and the politicians to not only maintain the corrupt system, but also to expand it. In 1981, there was no Plunge Protection Team. No one had ever heard of Quantitative Easing and if anyone had spoken of negative interest rates, he would have been laughed to scorn. Yet the bankers, politicians and news media have managed not only to sell the public on all this financial flim-flam, but they make it seem downright normal. This was possible largely because the American people did not take to heart Paul’s warnings from 1981.

Ron Paul was right on target when he wrote, “The greatest threat facing middle and working class Americans is our depreciating paper currency.” This was true in 1981, and it’s true today in 2019.

I highly recommend Gold, Peace, An Prosperity. Not only is it a great primer on the dangers of the central banking, paper money and the importance of sound money, reading it makes me want to shout the title of a more recent book by Paul, End the Fed!

Chapters include: Foreword by Henry Hazlitt; Preface by Murray Rothbard; Impending Social Strife?; The People are Demanding an End to Inflation; Depreciation is Nothing New; “Not Worth a Continental”; The Best Medium of Exchange; Cross of Paper; How Our Money was Ruined; The Stage is Set; Is Business to Blame?; Are Banks to Blame?; Are Unions to Blame?; Inflation and the Business Cycle; The Guilt of the Economists; The Alternative to Inflation; Money and the Constitution; Morality and Transfer Payments; Citizen Control of Money; Day of Reckoning; Free Market Money?; Legal Tender Laws; An Historical Precedent; The End – or the Beginning; Index.

 

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