Why (and How) the Fed Could Incinerate Your Savings in One Month
As you might imagine, the last time I talked to the team at Birch Gold Group, the topic of inflation came up. I think this is a crucial matter for every American to understand.
Let me start with a fact about how money used to work. According to Michael D. Bordo, professor of economics at Rutgers University:
In other words, if governments really cared about price stability, they’d adopt a gold standard!
Now, here’s why they won’t…
The cost of maintaining economic stability
The Federal Reserve was founded in 1913 to do one thing: maintain economic stability.
Now, economic stability is a good thing! That’s what enables families and corporations to plan for the future. Lack of stability creates uncertainty, reduces confidence in the economy and encourages short-term thinking at the expense of long-term planning.
I’m a big fan of a generally stable, prosperous economy.
These days, the Federal Reserve’s economic goals are:
Here’s the problem: the Fed’s definition of “stable prices” results in a guaranteed loss of 2% of your purchasing power every year.
Why? Well, because they say so:
Notice, also, that “over the longer run” part of the statement above. That’s part of Federal Reserve Chairman Jerome Powell’s current list of excuses for today’s 8.6% inflation (over four times their goal!)
Now, let me ask you, which of these is better for price stability? Annual price increases of:
For me personally, I’m a big fan of knowing today’s money will still be worth about the same in the future! So let’s do a little math. Let’s put $1,000 under the mattress for ten years. After a decade, that $1,000 would be worth:
I simply cannot stress this enough:
The Federal Reserve’s goal is to destroy your purchasing power at “only” 2% per year.
Even at a “moderate” 2% rate, it’s taking a toll on your savings.
The 2% number seems arbitrary, even capricious, to me. Here’s the Federal Reserve’s explanation of why 2% wealth destruction per year is a good thing:
In other words, the Fed has to have some inflation, so they can intervene to “fix” the market during an economic downturn. (And, as we know to our despair, sometimes the Fed gets it very wrong.)
Could the Fed fix this ongoing wealth destruction, this invisible tax, just by changing their 2% target to 0.1%?
Theoretically, yes. In the real world, absolutely not. Here’s why.
It’s not about money, it’s about control
I’m going to quote a passage from my book, The Case for Gold:
Because the Federal Reserve has another power: they can create “money.” They don’t actually print it (that’s the Treasury Department’s job). Instead, they simply “buy” U.S. debt on the open market, and credit commercial banks’ reserve accounts with however many dollars they “spent.”
This is how money is created.
In other words, the Federal Reserve operates as a constant source of funds to finance Congressional deficit spending.
Ever wonder why nobody in Congress talks about “balancing the budget”? Because they think they don’t have to! They believe the next Senator or the next administration will somehow figure it out for them.
If Congress was an individual who constantly spent beyond his means, eventually, he’d find no one willing to take his IOUs. Congress doesn’t have to worry about that, though, because they have the Federal Reserve who has an unlimited budget for turning government debt into dollars.
The real problem with the gold standard was that it prohibited this sort of financial hocus-pocus. The amount of circulating money was limited to the quantity of gold the nation held – period!
And, ultimately, that’s why the U.S. won’t go back to a gold standard anytime soon. It would force our government to make fiscally-responsible decisions, and figure out a way to pay for the $30.5 trillion (and counting!) they’ve already spent.
It would force our government to make hard decisions – like you and I do every day.
Until Washington, D.C. can bring themselves to behave responsibly, we’re stuck with a monetary system that arbitrarily destroys your wealth on purpose, for the “greater good.”
Here’s one final thought, another quote from The Case for Gold:
We’ve come a long way from the principles our Founding Fathers set forth for the nation, some of them good, some of them bad. I firmly believe the Federal Reserve is one of the most economically destructive agencies in American history.
Ron Paul is a medical doctor, a retired Captain of the U.S. Air Force, an author who’s published 21 books and former twelve-term U.S. Congressman representing the state of Texas. He’s emerged as one of the leading voices challenging government’s addiction to deficit spending and the Federal Reserve’s wealth-destructive monetary policies. He works with Birch Gold Group to educate Americans about the threats to their financial futures, and how to protect themselves and their families.
Send this article to a friend: