Travesty of a Free Society

A quick look at the headlines tells us things are looking up.  Earlier this week, for instance, the Commerce Department reported that consumer spending rose 0.5 percent in November…notching the seventh consecutive monthly increase.  Obviously, this is big news for the U.S. economy.

Why is this big news?  In particular, this is big news because consumer spending accounts for about 71 percent of the U.S. economy.  When consumer spending is increasing, economic growth gets a good boost.

In fact, this is what appears to be happening.  According to the latest estimate form the Commerce Department, third quarter GDP increased at an annual rate of 4.1 percent.  That’s the best quarter for economic growth in nearly two years.

Naturally, the creams are ecstatic.  Christine Lagarde, Managing Director of the International Monetary Fund, said the IMF would raise its 2014 growth forecast for the U.S. economy…

“We see a lot more certainty for 2014,” said Legarde.  “…that gives us a much stronger outlook for 2014, which brings us to raising our forecast.”

As far as we can tell, no one bothered to ask where consumers are getting the money to consume with.  The last we checked the labor participation rate is at its lowest level in over 35 years.  If people aren’t earning money to consume with, they must be borrowing it.  Thus, an increase in consumer spending represents the accelerated rate people are going broke.

Inflating Away Federal Pay Raises

Wall Street didn’t stop to consider such trivialities.  Rather, they celebrated the news with gusto.  Traders did everything they could to push the stock market to new record highs Tuesday…just in time for Christmas.  “Stocks end on a high note before Christmas,” read one headline.  Yesterday they continued their jolly ways with another new record close.

On top of that, just when it seemed things couldn’t possibly be more superlative, President Obama took pause from his Hawaiian pineapple luau to sprinkle around some additional good cheer

“President Barack Obama … signed an executive order on Monday – during his Hawaiian vacation – to set civilian and military pay rates for the coming year.

“The measure gives the government’s civilian workers their first pay raise in four years….  The pay increase for the military and civilian employees will be 1 percent in 2014, which is what the president proposed earlier this year.”

Unfortunately, for federal workers, even with an understated CPI of 1.2 percent, their pay increase has already been inflated away.  In addition, over the last four years while their pay’s been frozen, the dollar’s lost 8 percent of its value.  With respect to federal wages we could care less if workers get a raise or not.  With respect to a dollar devaluation of 8 percent over a four year stretch, we find this to be downright appalling.

Yet this is what the Federal Reserve, which targets a 2 percent annual inflation rate, strives for as prudent monetary policy…

Travesty of a Free Society

Speaking of the Federal Reserve, did you know December 23 marked its 100th year anniversary?  We’re not sure how the Federal Reserve has endured an entire century.  That it came to be in the first place is an utter travesty of a free society.

If you didn’t know, the Federal Reserve came into existence with the passing of the Federal Reserve Act.  Inauspiciously, this law was pushed through Congress on December 23, 1913…two days before Christmas.  The Act created the Federal Reserve, the central bank of the United States, and gave it legal authority to issue Federal Reserve Notes as legal tender.

Congressman Charles August Lindbergh Sr., father of aviation pioneer Charles Lindbergh, strongly opposed the Act, cautioning the new law would create a gigantic money trust, and managed inflation punctuated by dramatic market panics.

Regrettably, Lindbergh’s warning has played out numerous times over the last 100-years.  The most recent example is the Federal Reserve’s big bank bailout in 2008-09, which followed years of roaring asset inflation.  Even worse, the Federal Reserve perpetuates the inescapable world of debt slavery we’re all indentured to for life.

No doubt, since the Federal Reserve was created, inflation has been the order of the day.  According to the Bureau of Labor Statistic’s inflation calculator, the dollar has lost 96 percent of its value since 1913 – the year the Fed was created.

Through this continual process of inflation the Fed concentrates wealth at the top and cheats workers and savers.  This process endures to the present.  What’s more, Fed intervention into the economy and financial markets has never been greater.

Under Ben Bernanke’s leadership, the Fed pushed real interest rates below zero and inflated the money base over $3 trillion.  This allowed the ultra-wealthy to borrow money for less than free and place big bets on inflating asset prices.  Why shouldn’t they?

The Fed has rigged things in their favor.  For they have full knowledge that when asset prices crack, like they did in 2008-09, the Fed will socialize the losses with more inflation.  At the same time, workers and savers suffer as their wages, savings, and standard of living are eroded away.

Positively, the Federal Reserve is a travesty of a free society.  It always has been.  Freedom, including free markets, simply cannot coexist with the Federal Reserve or any other central bank.  By setting the price of money, they influence the price of everything.

Certainly, we’re not offended by the Fed’s money manipulations purely for the sake of money.  What we’re concerned with is what money represents…mainly, stored time and the sacrifices made to earn it.

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 crapped on by clients while your kids were growing up.  Think of all the sunny days you missed because you were pounding the phones at the office all day.

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

The point is, when the Fed inflates your money away they not only steal your money…they steal your life.  Quite frankly, we find this to be intolerable.


MN Gordon
for Economic Prism

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