Thank the Fed for 'Stagflation'
Although it has not been publicly admitted by financial elites, Americans have been suffering for quite some time through the painful effects of "stagflation." Stagflation is the term which is used when there are rising overall prices coupled with sluggish or no economic growth. It is a double whammy for all, where job creation and real wages stagnate while prices increase, sometimes dramatically.
A phenomenon of the late 1970s, stagflation has supposedly been held in check by "prudent" monetary policy. However, as every consumer is well aware, such a notion is another myth propagated by the ruling establishment. Though there have been on-and-off periods of economic growth over the past generation, overall prices have continued to rise—not as sharply as in the late 1970s, but nonetheless, goods have gotten increasingly expensive except in a few sectors (such as computers) where real prices have actually fallen. What policymakers have done to conceal the problem is to redefine and change the methods they use to formulate price indices. For example, the consumer price index does not include food and oil prices. Even with the exemption of oil and food prices, over the past 12 months consumer prices have shot up 4.3%, a rate that has caught the attention of monetary officials. Charles Plossner, president of the Federal Reserve Bank of Philadelphia, said, "Since the summer almost all of the measures of inflation that we look at have begun to accelerate again, and in some cases pretty sharply." He continued, "Perhaps the inflationary pressures aremore broad-based than just energy" (The New York Times, Feb. 21, 2008).
His boss, Federal Reserve Chairman Benjamin S. Bernanke, was evasive on the subject at his semiannual congressional appearance as he assured members that the Fed was on top of the situation: ". . . in the months ahead, the Federal Reserve will continue to closelymonitor inflation and inflationary expectations." While the Fed has belatedly admitted that there is a general economic slowdown, its officials are loath to speak of stagflation because it would mean an indictment of their own policies. Supposedly, the Fed's chief role is to be an "inflation fighter." At least that is what the two dominant but indistinguishable political parties have taught.
The reality of the matter is quite different than what the public has been led to believe about the nation's central bank. While it is touted as an inflation fighter, the Federal Reserve is anything but and is, in fact, the real culprit behind the current rise in prices and stagflation. Increases in overall prices are not inflationary, instead, price increases are the result of inflation which, traditionally, has been the term used for the expansion of the money supply. The increase in the supply of money generally leads to a reduction in its purchasing power.More dollars lower the value (purchasing power) of each monetary unit. As the nation's central bank, the Federal Reserve has the sole monopoly power over the money supply. It has the ability to increase or decrease the supply of dollars without restraint, which it does through the banking system.
Ever since the start of the housing and mortgage market crisis, the Fed has dramatically expanded the money supply. Paradoxically, the severe financial difficulties which the mortgage and housing industries are facing are due, in part, to the Fed's previous inflationary policy and the deceptive and lax lending practices of the mortgage industry itself.
The results of the Fed's monetary inflation has been rising domestic prices and a plummeting dollar which, over the past four years, has lost 24% of its value against a basket of six major currencies.
The cure for stagflation and the economy in general is to stop the Fed from inflating. However, since the nation's central bank has no real supervision or public oversight, it is not likely to do so. Thus, the only way to counteract the problem is to abolish the Fed and return to a sound monetary system based on a metallic (gold) standard as presidential hopeful Ron Paul has consistently spoken about throughout his campaign and over the course of his distinguished congressional career.
Economic growth can only come about through genuine savings, not via the printing press. Savings provide the crucial resources for capital investment and the payment of wages during the lengthy periods of production.
Until there is a fundamental change in the current monetary and banking system (a return to sound money), genuine long-term prosperity will be an illusion.
(Issue # 11, March 17, 2008)