The Federal Reserve's Explicit Goal: Devalue The Dollar 33%

Forbes ^ | February 6, 2012 | Charles Kadlec

[Tolerance Sucks Rocks]

The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

An increase in the price level of 2% in any one year is barely noticeable. Under a gold standard, such an increase was uncommon, but not unknown. The difference is that when the dollar was as good as gold, the years of modest inflation would be followed, in time, by declining prices. As a consequence, over longer periods of time, the price level was unchanged. A dollar 20 years hence was still worth a dollar.

But, an increase of 2% a year over a period of 20 years will lead to a 50% increase in the price level. It will take 150 (2032) dollars to purchase the same basket of goods 100 (2012) dollars can buy today. What will be called the “dollar” in 2032 will be worth one-third less (100/150) than what we call a dollar today.

The Fed’s zero interest rate policy accentuates the negative consequences of this steady erosion in the dollar’s buying power by imposing a negative return on short-term bonds and bank deposits. In effect, the Fed has announced a course of action that will steal — there is no better word for it — nearly 10 percent of the value of American’s hard earned savings over the next 4 years.

Why target an annual 2 percent decline in the dollar’s value instead of price stability? Here is the Fed’s answer:

[TexasRepublic]

If the true rate of inflation was known, we would see the dollar has already declined at least 33% since Comrade Osama took power.

If anything, the trend of inflation will accelerate in the future (toward hyperinflation) until our dollars are worth Weimar Republic Marks. A cautionary reminder: when buying bread, take the wheelbarrow in the store with you, lest it be stolen.

[greeneyes]

I lived through that period of time. The interest rates were higher, but insufficient to offset the rising cost of goods and services. The rates on CDs and savings were no better comparatively speaking. They still were negative when compared to galloping inflation.

Food and gasoline was especially challenging. Many people who had previously lived off their retirement income and a little interest, had to start liquidating more and more of their principle, just pay for necessities.

Plus wages did not keep pace either. Any time inflation gets to double digits, the majority of people will be negatively impacted. Especially the poor, and middle class.

It is relatively easy to invest money to keep ahead of low inflation rates, but not runaway inflation. Rates on CD’s and savings accounts are typically tied to Treasuries, and usually pay less than those securities.

Rates on CDs in general are not enough to offset the rate of inflation, regardless of whether that rate is single or double digit. You have to invest elsewhere for that. I sincerely hope we never have to face such inflation again. It was a heck of a lot more destructive than you have stated.

[William Tell]

greeneyes said: "I remember the 3 cent stamp, a 10 cent movie, and bubble gum for less than 1 cent."

And I remember when gasoline cost less than 25 cents per gallon.

Actually, the price of gas is STILL less than a quarter; when purchased with a 90% silver quarter. What more proof does one need that silver and gold are real money and that the paper issued by the government constitutes theft?

[TheOldLady]

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[The_Reader_David]

I was not arguing that inflation is not harmful. Actual yield on some sorts of investments (for example non-inflation graded annuities) is eroded, and wage rates tend to rise more slowly than prices, but as this graph, which shows the SGS inflation rate as well as the corrupted government calculation and compares them to the Fed Funds rate, which was in the early '80's below money-market yields, shows, real interest rates were positive throughout most of '80's (a little period in 80-81 excludes), so among the harms was not erosion of savings (assuming, as most of us back then did, we had them in money market funds or CDs):

[stevio]

We used to give the clerk a penny and get back several Mills. A mill is 1/1000 of a dollar.

What's that, like pre-civil war?

[greeneyes]

[We used to give the clerk a penny and get back several Mills. A mill is 1/1000 of a dollar.
What’s that, like pre-civil war?]

I don’t know when it was established. But I was using them in the early 1950’s.

[greeneyes]

Look if you want to believe that cds and savings accounts did not loose purchasing power during the 1970s through 1985 feel free. You can't just look at the 80s.

I was actually tracking my rates of savings versus inflation in my household versus prime rates. I stand by what I said to begin with. Inflation robs people of purchasing power especially those on limited incomes, savings accounts, and cds.

I will remind you first of all that government CPI numbers are often not a reflection of reality. Just as they claimed little or no inflation during the last 3 years, we all know that the cost of many things including food, fuel, and health care have been greatly increased.

I will also remind you that money market funds were established as a response to the erosion of purchasing power due to the restrictions of Regulation Q pertaining to banks savings and deposit accounts. The huge outflows from banks resulted in some revisions of Reg. Q to allow for such things as "now" accounts.

During periods of High and rising inflation and interest rates, there is a lag between the rising rates and investment in something such as cds. This results in a loss of purchasing power. Bonds are even worse. People looking for safe investments tend to use cds and bonds, and their purchasing power goes down.

As the rates come down, there is a benefit, if you are lucky enough to lock in the top interest rate for a long period such as ten years, for example. The typical little old lady with her cds usually gets screwed at the beginning of the inflationary spiral, and rarely recovers completely from that.

Now if you want to believe that inflation will be great if you invest in cds, be my guest. I'll stick to real estate, silver, and stocks.

Inflation often punishes savers. It devalues the dollar, and government utilizes monetary policy to inflict it on our citizens, when they have followed too much of an expansionary monetary policy.

[zeestephen]

---

“.....a compounded rate of 2% will halve the deficit in 36 years.”

---

I believe average maturity on federal debt is currently about 5 years.

Since inflated dollars would be used to purchase future debt, would that increase the rate of debt depreciation?

But, if interest rates spike higher, would that neutralize debt depreciation?

Really complicated now that I think about it.

One thing I do know.....

The dollar has lost 95% of its value since the Fed was established in 1913.

[The_Reader_David]

Inflation punishes savers when it creates negative interest rates, as I pointed out, but not when real interest rates remain positive.

I wouldn’t invest in CD’s or bonds or money market funds now because real interest rates are negative. Indeed my pension funds are in the same sorts of investments you advocate — equities (including overseas), real estate and precious metals.

I think we are basically in agreement that inflation is harmful, and I’m not sure why you keep writing at such length to object to my very narrow point that inflation erodes savings only when it creates negative real interest rates, which it does not always do as the period 1982-9 shows.

[greeneyes]

[Inflation punishes savers when it creates negative interest rates, as I pointed out, but not when real interest rates remain positive.

I wouldn’t invest in CD’s or bonds or money market funds now because real interest rates are negative. Indeed my pension funds are in the same sorts of investments you advocate — equities (including overseas), real estate and precious metals.

I think we are basically in agreement that inflation is harmful, and I’m not sure why you keep writing at such length to object to my very narrow point that inflation erodes savings only when it creates negative real interest rates, which it does not always do as the period 1982-9 shows.]

***********************************************************
Well, bless your heart, I respond to you, because you keep posting to me. Also, I knew a lot of elderly people who remembered the stock market crash and great depression, who socked their savings away in bank cds, treasury bonds, and savings accounts(so called safe accounts). They suffered huge losses of buying power during the period of great inflation.

The narrow point you make does not exist in situations of runaway inflation trending higher and higher in double digits for such savers, and that is what my post was about.

When inflation levels out and trends downward, then it is possible for such investors to avoid a loss of purchasing power, but this is due to the lag between decreases in inflation and interest rate reductions. For example, if you purchased a 10 yr treasury or cd at around 14% at the peak in 1980 you were ahead during the period when inflation was trending down, but you would have been hurting had the prices continued to rise to 15%,20% etc.

The period of inflation that I am talking about began in the 1970s and peaked in 1980 at a little less than 15% inflation and prime at 22%.

You keep posting about a period of time beginning in 1980. Well guess what? That was NOT a period of increasing inflation, it was the beginning of decreases in inflation, and does not even pertain to the period of time and phenomena (rapidly rising inflation) that I was speaking of.

Don't reply back unless you want me to respond.

[William Tell]

greeneyes said: "We used to give the clerk a penny and get back several Mills. "

I can recall from perhaps around 1960 that some trading stamps, like "Blue Chip Stamps" or "S&H Green Stamps", which were issued by merchants, were marked "Cash Value 1 Mill".

You could collect 1200 Blue Chip Stamps, paste them into a booklet, and redeem them for items in a catalog. You could also exchange them for cash at the rate of $1.20 per book of 1200, or 1 Mill per stamp.

[greeneyes]

Oh yeh, I had forgotten all those stamp collections. S & H Green Stamps is what we collected right after I got married IIRC. LOL.

In fact I probably have a few unredeemed in some of the banker’s boxes stuffed in the basement storage area I stored documents in from way back then.

[Sprite518]

Compound this story with all the spending by the feds. Then you will see a lot more than a 2% inflation on prices.

http://www.usdebtclock.org/

Oh and where are all those jobs? They are going overseas. Thanks to the B.S. lie about Free Trade. All that means is we don’t charge tariffs, but countries like China does on our products.