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Tuesday, September 22, 2006

Smokey Briggs

Sage Views

By Smokey Briggs

Inflation - why you ought
to be mad, and who you
ought to be mad at

As I have walked the path of life, I have occasionally stumbled across questions of nearly mind-numbing magnitude. Questions that leave wise men searching about for obscure knowledge to explain the unexplainable.

Questions like:

Why am I here?

How big is the Universe?

Is there a God?

And the real biggie: What is inflation?

Well, I still don’t know why I’m here, but I am pretty sure the Universe is real big, and I can see the hand of God in my daughters’ faces every day.

And, now I know what inflation is, and I’m mad as hell.

I’m mad because I am obviously a moron for not figuring it out on my own a long time ago.

I’m extra mad, nearly-frothing-at-the-mouth-somebody-shoot-the-rabid-dog-mad, that not once in 22 years of schooling (yeah, I was a professional student), did somebody bother to explain it to me.

Of course, as you will see here in a minute, if we all learned what inflation really was, we’d be gathering pitchforks and torches and heading for Washington D.C.

Our little mob would make a stop at each Federal Reserve Bank along the way too.

Now, I’ve warned you that I’m not the heaviest brick in the stack, but bear with me. This is worth it.

How many times have you been told that inflation is the natural product of a healthy, growing economy?

Or, that the Federal Reserve is trying to slow inflation down by tinkering with the interest rates?

Well, both are misleading to the point of being outright lies.

To understand inflation, there are a few little facts you need that are left out of most of our educations, so first let me fill in a few holes.

First, the Federal Reserve is neither a part of the government, nor does it have any reserves. From its name, to what it actually does, it is a vicious fiction with the sole purpose of picking your pocket without you noticing.

What the Federal Reserve is -- is a private bank owned by private, very rich people. This bank was given absolute monopoly power over money, credit and all the other banks when it was created by Congress in 1913. Notice, it was created by your Congress, but Congress has no power over it, and it is owned by private folks.

The Second bit of info that is conveniently left out of our educations is the concept of money?

Ever ask yourself, ‘What is money?’

Well, the answer is simple - money, real money, is a commodity that has real worth. It could be butter, beans, cows or iron. Over thousands of years, gold has been the number one choice because it is always considered valuable, and it’s scarce, and it is easy to transport, and doesn’t go bad or die.

Butter and cows just do not work as well in the long run.

But, the real key is that gold has a value before it is turned into a pretty coin with some old guy’s picture on it.

Okay, so money is a commodity. So what, you ask me?

Here’s what. You and I both know that the more there is of something, be it butter, cows or whatever, the less that something is worth.

When there has been lots of rain and cows are plentiful, the price of beef goes down, right?

If butter oozed out of greasewood trees and everybody could get all they wanted without much effort, butter would be pretty cheap, right?

Of course it would.

This is simple supply and demand that we all understand from the time we can walk.

Well folks, money is not any different. The more of it there is, the less each piece is worth. If we were all using gold coins worth a buck each, and suddenly Smokey found a way to make gold out of dirt and fire and made himself a couple billion coins on the cheap, what would happen to the value of gold?

It would drop through the floor and we would have to find something else to use for money. Maybe cows.

But, the principle is simple - the more of something there is, the less it will be worth.

Remember that for a moment, there is a test at the end.

So, here is the deal.

The Federal Reserve, which is just a damned private bank that our elected representatives gave special powers to, increases the supply of money every day.

Now, there are two ways to increase the amount of money circulating.

The first is to just print some. Our federal government does a lot of that, but they just do not have enough printing presses to do the damage that is being done.

The second way, however, is closer to magic. You just create more money out of thin air. Now, how do you do that?

Does the Federal Reserve have a bunch of money faries that dance in the moonlight and create money?

Nope, but close.

What they have is the ability to control the most basic interest rate - the one you hear yacked about on the television news all the time by idiots who have no idea what they are talking about - the federal funds rate. All loans are eventually based on this rate.

So what, you ask? What does that have to do with the value of my dollar bill?

Well, there is one more piece of the puzzle - and that is the fiction called fractional reserve banking - another little item we are not usually educated about.

All fractional reserve banking means is that banks are allowed to loan out more money than they have in reserve (in the vault).

This became possible in 1933 when President Franklin Roosevelt forceably took America off the gold standard.

Before then, you could go down to the bank with your dollar bill and demand gold or silver for your paper money. Paper money was just an IOU for your gold.

Not after 1933. Now all they have to give you is more paper money, or maybe a cashier’s check.

A Federal Reserve creating money out of thin air won’t work if depositors can demand gold for their “money.” That is why we experienced the Great Depression about 15 years after the Federal Reserve began conjuring money. And, that is why Roosevelt took us off the gold standard.

Magically created money cannot be tied to something of real value because eventually folks will get suspicious of the magic money when the fairy dust begins to rub off and start wanting their silver and gold.

Okay, here is the last piece of the puzzle. The Federal Reserve sets the federal funds rate - the rate banks loan each other money at.

But, banks do not have to have money in the vault to loan out. These days it is estimated that there is 50 to 100 times more money loaned out than actually exists in greenbacks.

So, when a bank lends money, it is in essence creating money out of thin air since there is no money in the vault to back that loan. There is no money at the bank loaning the money, and none at the so-called Federal Reserve bank that supposedly insures the bank making the loan. That is the beauty of fractional reserve banking. You don’t have to really have the money to loan it out.

So, the Federal Reserve, by lowering or raising the interest rate, influences how much money local banks lend out. The cheaper the interest rate, the more likely Smokey is to go take out a loan, and vice versa.

But, no matter the rate, every time Smokey takes out a loan, new money is created in the form of that credit that I’m going to spend on a new car or a house, just like it was really money. In essence, it becomes money - new money.

The effect is to increase the actual supply of money.

According to the Federal Reserve’s own data, the money supply in the USA has doubled since 1995.


By the way, the Federal Reserve quit publishing this data in March of this year. The data was known as the M3, and was a quick look at the total of credit and printed money in circulation each month.

So, we know that the money supply is being increased very quickly.

And we know how this is being done. And we know that when the supply of something goes up, the value goes down.

So, guess what is happening to the value of your dollars?

The value goes down every year.

The government tells us that a “healthy” inflation rate is 3 percent.

Of course, there is one more smokescreen meant to keep you from figuring out the truth.

This last smokescreen is the way inflation is referred to. We all KNOW that inflation means “rising prices” right?

Wrong. Rising prices are the symptom. The reason prices go up is because the value of the dollar bill in your pocket went DOWN.

Prices are not rising 3 percent each year, the value of your dollars is going down 3 percent each year.

There is a big difference.

And, I would lay odds that the government and the Federal Reserve are lying like rugs about inflation only being 3 percent.

I know that my buying power has dropped by more than 3 percent each year.

And, if the money supply has doubled in the past 10 years, it goes to figure that the value of your dollars has dropped by one half.

Are you mad yet?

I am.

Just what is “healthy” about my money becoming worth less and less every year. Think about how hard that is on senior citizens on fixed incomes.

It’s theft.

When you get down to it, inflation is caused by the Federal Reserve and the Congressionally approved system of fractional reserve banking.

The Federal Reserve does not fight inflation, it causes it. It creates it.

And, in doing so, it robs you of at least 3 percent of your wealth every year.

Add that up over 10 years. How about 20 years?

Mad yet?

You ought to be.

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