Posted on 07/12/2006 5:48:00 AM PDT by Hydroshock
For years officials at the Federal Reserve Bank, including Chairman Bernanke himself, have assured us that inflation is under control and not a problem-- even as the price of housing, energy, medical care, school tuition, gold, and other commodities skyrockets.
The Treasury department parrots the Fed line that consumer prices, as measured by the consumer price index (CPI), are under control. But even many mainstream economists now admit that CPI grossly understates true inflation. The most glaring problem is that CPI excludes housing prices, instead tracking rents. Everyone knows the cost of purchasing a home has increased dramatically in the last ten years; in many regions housing prices have more than doubled in just five years. So price inflation certainly is alive and well when to comes to the largest purchase most Americans make.
When the Federal Reserve increases the supply of dollars in circulation, both paper and electronic, prices must rise eventually. What other result it possible? The supply of dollars has risen much faster than the supply of goods and services being chased by those dollars. Fed policy makers have more than doubled the money supply in less than ten years. While Treasury printing presses can print unlimited dollars, there are natural limits to economic growth. This flood of newly minted US currency can only increase consumer prices in the long term.
Mr. Bernanke has stated quite candidly that he will use government printing presses to stimulate the economy as necessary. He is famous for joking that he would endorse dropping money from helicopters if needed to prevent an economic slowdown. This is nothing short of an express policy to destroy our money by inflation. Every new dollar erodes the value of existing dollars based on simple supply and demand. Does anyone really believe the Treasury can make us rich simply by printing more money?
The coming dollar crisis is not likely to be “fixed” by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government.
Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available-- and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad.
The irony is that many of the Fed’s biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed’s easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It’s the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability-- and certainly no legal or moral right-- to decide how much money should exist and what the cost of borrowing money should be.
ping
bump
Too early to reply to the misinformation in this letter. Lemme get my coffee and I'll be back to this.
LIke what? And keep in mind Rep Paul is a respected conservative.
Respected Conservative for sure (why Im not sure) but unrealistic.....hasnt the housing market always been subject to cycles? Interest rates always fluctuated.How about the benefit of home owners gathering equity with rising property values.
What about the housing bubble "burst".....isnt a little too late to complain about this now as the prices are actually going to slide some?
Its a time of war Mr Paul and the country has prospered in its recovery from recession.
Seem like the good RP neglected to give any credit to the policies that the Fed/Administration have put together to save this countrys ass (as usual).
This man is extremely condescending.To watch him speak on the floor youd think that everybody else in the room are idiots (and most are but so is this doomsdayer,theyre not alone).
ping
ping
I agree with you 100%.
Because the other options are rampant inflation, recession, or stagnation. A moderate inflation rate is much easier for everyone to adapt to.
More doom and gloom.. the economy is going to explode, the sky is falling nonsense.... When too much liquidity is out there, the fed raises interest rates and it takes more money back in than it puts out controlling the supply.... someone needs to go back to macroeconomics 101. Example.. bank borrows $100, the fed has overnight interest rates at %5.25.... bank puts back $105.25.... there you go, $5.25 less dollars in the economy... now multiply that by a few trillion and you get the picture how supply is controlled... commodities prices are increases because supply is dropping while demand is picking up, which raises prices on gold, copper, housing etc, when supply catches back up with demand, prices will fall again.
The reason that rents are tracked rather than housing prices is that people don't simply buy a house like they would a commodity. They take out a mortgage on a house.
When interest rates are low, you can afford a much more expensive home than when interest rates are higher.
I simply could not afford the home I purchased a couple years ago if the interest rates were at 10% for home loans rather than a bit over 5%.
Rental prices more accurately track the cost of housing than home prices.
The Fed has no control over the oil supply or price.
That job falls to the US military.
BUMP
Or we find either new reserves, or we develop new energy supplies. Like say coal gasification.
That's what it's all about. I don't know why he's putting so much blame on the Federal Reserve.
If anything, the Fed's habit of using recessions to battle inflation is much more harmful than creating too much money.
BAHOG alert!
The Federal Reserve's control over monetary policy has nothing to do with the 16th Amendment.
That authority comes from Article I section 8 of the Constitution.
...
To borrow money on the credit of the United States;
...
To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;
...
The Federal Reserve itself was created by the Federal Reserve Act in 1913.
This by deliberate inflation, government colludes with the Federal Reserve (a private corporation)
The Federal Reserve is not a Private Entity. It is not a corporation. It is part of the Federal Government.
It is independent to the extent that's it's actions do not require additional approval by congress or by the president as long as those actions are within those already approved through legislation.
Congress can limit or remove that authority through legislation.
http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm
Who owns the Federal Reserve? The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects. As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government." The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.
Why do they target 2% inflation? Because higher inflation is very harmful, and lower levels of inflation are not reasonably attainable or sustainable for any length of time.
Inflation on some types of goods is often desirable.
Can you imagine if home and property values didn't rise at least somewhat over time?
People invest in real property that they expect to rise in value over time.
We also do not have complete control over inflation because we aren't alone in the world. We exist as part of a world economy. We need monetary policy that allows us to adapt to a changing world. If we did not adjust our money supply, we'd end up having our own economy undermined by other countries that manipulate theirs. We already experience that to some extent with China manipulating their currency value. We would be even more susceptible if we did not manage our own currency.
If that's all they did, then it would be good. What they do is they take back too much liquidity causing recessions, putting us on an endless cycle of booms and busts. The Fed needs to use market indicators to keep the domestic value of the dollar constant, and stop trying to manage our economy.
commodities prices are increases because supply is dropping while demand is picking up, which raises prices on gold, copper, housing etc, when supply catches back up with demand, prices will fall again.
Supply side economic policies are the way to go. It's too bad GWB was pushing demand side policies while the supply side of our economy was hurting.
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