How the Fed Robs You of Your Life

Today, as we step into the New Year, we reach down to turn over a new leaf.  We want to make a fresh start.  We want to leave 2019’s bugaboos behind.

But, alas, lying beneath the fallen leaf, like rotting food waste, is last year’s fake money.  We can’t escape it.  But we refuse to believe in its permanence.

Victorian economist William Stanley Jevons, in his 1875 work, Money and the Mechanism of Exchange, stated that money has four functions.  It’s a medium of exchange, a common measure of value, a standard of value, and a store of value.

No doubt, today’s fake money, including the U.S. dollar, falls well short of Jevons’ four functions of money.  Certainly, it comes up short in its function as a store of value.

Hence, today’s money is not real money.  Rather, it’s fake money.  And this fake money has heinous implications on how people earn, save, invest, and pay their way in the world we live in.  Practically all aspects of everything have been distorted and disfigured by it.

Take the dollar, for instance.  Over the last 100-years, it has lost over 95-percent of its value.  Yet, even with this poor performance, the dollar has one of the better track records going.  In fact, many currencies that were around just a short century ago have vanished from the face of the earth.  They’ve been debased to bird cage liner.

Who Will Buy All this Debt?

The failings of today’s dollar are complex and multifaceted.  But they generally stem from the unsatisfactory fact that the dollar is debt based fiat that’s issued at will by the Federal Reserve.  How can money function as a store of value when a committee of unelected bureaucrats can conjure it from thin air?

After President Nixon temporarily suspended the Bretton Woods Agreement in 1971 the future was written.  The money supply has expanded without technical limitations.  This includes expanding the Fed’s balance sheet to buy debt from the Treasury.  In a practical sense, Fed purchases of U.S. Treasury notes are now needed to fund government spending above and beyond tax receipts (i.e., fiscal deficits).

As an aside, the Fed’s charter prohibits it from directly purchasing bills issued by the U.S. Treasury.  So to bypass this restriction, Dealers – i.e. preferred big banks – purchase Treasury bills upon issuance and then several days later these same Dealers sell them to the Fed.  What’s more, for providing this laundering service the Dealers pocket an unspecified markup.  These indirect money printing operations have been going on for well over a decade, and last occurred about a week before Christmas – to the tune of nearly $23.7 billion.

According to the Congressional Budget Office, the federal budget deficit for the first two months of fiscal year 2020 is $342 billion.  At this rate, Washington’s going to add over $2 trillion to the national debt in FY 2020.  Who will buy all this debt?

Not China.  Not Japan.  Not Saudi Arabia.  Not American citizens.  Instead, the Fed will buy it via balance sheet expansion.  Of course, there are natural consequences for these underhanded practices – and you’ll pay for them, you already are…

Subjective Evaluation

About a decade before Jevons outlined the four functions of money, he elaborated the idea of marginal utility.  That the utility – the satisfaction or benefit – derived by consuming a good or service changes from an increase in the consumption of that good or service.  This change in utility influences how goods and services are priced within the economy.

Yet Jevons went down the rabbit hole of simultaneous determination, which included modeling complex relationships as systems of simultaneous equations in which no variable “causes” another.  The flaw in Jevons’ approach is that it relied on creating artificial, modeled representations of reality.  Unfortunately, much of popular economics followed him down the rabbit hole where they still reside to this day…enamored with technical nonsense.

However, at the same time as Jevons, Austrian economist Carl Menger, from the University of Vienna, independently developed the concept of marginal utility.  Menger, in contrast to Jevons, applied these principles through deduction and logic to explain the real world actions of real people.  For Menger, the role of subjective evaluation was critical to the principle of marginal utility.

Menger, in Principles of Economics, published in 1871, explained prices as the outcome of the purposeful, voluntary  interactions  of  buyers  and  sellers,  each  guided  by  their  own  subjective evaluations of the usefulness of various goods and services.  Menger elaborated that the exact quantities of goods exchanged, and their prices, are determined by the values individuals attach to marginal units of these goods.

Menger also recognized that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts.  Hence, the fall in marginal utility as consumption increases is known as diminishing marginal utility, and is commonly expressed as the law of diminishing marginal utility.

Money, like any other good, is subject to the law of diminishing marginal utility.  Specifically, an increase in the quantity of money by an additional unit leads to a reduction in purchasing power per monetary unit.  As people exchange the increased money against other goods, prices rise.  Or, more aptly, the purchasing power of money falls.

How the Fed Robs You of Your Life

The inflation of the money supply, in effect, distorts the prices of goods and services.  Subsequent units of a good or service may have a reduced utility, though, over time, their nominal cost increases.  This also undermines individual savings…and robs savers – that’s you – of their lives…

When the Fed introduces new money to the economy to finance deficits it debases the dollar.  Similarly, when the Fed provokes the over issuance of credit by artificially suppressing interest rates, it further inflates the money supply and debases the dollar.  This has the effect of reducing the dollar’s purchasing power.

What does all this have to do with you?

Think of all the days you’d have rather stayed home with your family than schlepping and slogging the day away for money.  Think of all the time you spent on the road getting dumped on by clients while your kids were growing up.  Think of all the sunny days you missed because you were at the office all day estimating and bidding on ridiculous jobs.

For what?  So that after paying taxes on it all, what’s left over would be inflated away from your bank account?

Remember, money, in addition to being property, also represents time and the sacrifices made to earn it.  When the Fed inflates your money away it not only robs you of your money.  It robs you of your life.

Sincerely,

MN Gordon
for Economic Prism

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