Tuesday, October 12, 2010

Inflation and the Federal Reserve Fiat System

I recently engaged in an email exchange with a reader. He was interested in finding out more information about the subjects broached in my article about the financial mess in Iceland released earlier this year. I assumed he was looking for information about central banking and told him about a book I had read years ago called "The Creature From Jekyll Island" by G. Edward Griffin. This is a book written by a highly respected author that tells of the secretive creation of the Federal Reserve.

To begin with, I told him that I feel the current system is immoral and that is what I base my opinion on. When the power to print the money people use is given to a very few people, then those people become very powerful, too powerful. I believe those people have, without a doubt, abused the power they were entrusted with for their own benefit.

Anyway, this particular gentleman is almost done with "The Creature From Jekyll Island" and he had a couple of questions for me. I'm paraphrasing here, but he basically asked me why, if fiat money is really just worthless, counterfeit notes, would the Federal Reserve want to get their money back? He then went on to ask about inflation and wondered how anyone would know more money was in circulation if that was its cause. The following is part of the answer I gave him.

I'm no financial expert, but I do have a way at looking at these issues that may help. Let me run it past you to see if it works. The first thing to remember is that money may be counterfeit, but it is not worthless. In the case of a monopoly fiat system, this is usually because there are laws called legal tender laws that force people to trade using the fiat money that is created by the elite at the top of the pyramid. Money is just a medium of exchange. People have a tendency to think of money as a special case because of these laws, but in a free market, or a freer market, there'd be many choices we could make as to what to use as a medium of exchange. So, try to think of money as just a commodity. A commodity on the open market is only worth what people will give you for it. To illustrate, I'll try to use simple numbers. Say you can buy a loaf of bread at the market for a dollar. One could say that the loaf of bread is worth a dollar, but one could also say that a dollar is worth a loaf of bread.

Ok, now let's examine the question of why Federal Reserve notes are counterfeit. Early on in the history of the United States the US dollar was defined. It was to be worth about an ounce of silver. As you can see by the cost of an ounce of silver today this is no longer true. The Federal Reserve worked hard early on to get away from the silver definition and the gold standard in order to be able to print as much money as it wanted and to flood the system with that money. They got around these laws by printing the words Federal Reserve Note on their bills, which are actually debt notes, good for all debts, public and private. But you can see how much less a dollar is worth today than it was at the beginning of the 20th century, just try to buy an ounce of silver for a dollar today and see how far you get.

Inflation doesn't necessarily pop up overnight. It creeps upon us slowly. It has to do with how difficult it is to come upon a dollar. Let's look at the loaf of bread example. For simplicity's sake, let's say a loaf of bread cost a penny back in 1900. In the year 2000 that same loaf of bread cost $2.00. That's inflation of 20,000% over 100 years. Think about that. It means that a penny is 20,000 times easier to earn in the year 2000 than it was in the year 1900. A penny was actually worth something back then, it was worth a loaf of bread, it's more or less worthless these days. But it's also a measure of how easy it is to come across a loaf of bread. Back in the 1700s, a loaf of bread may have cost a nickel. This would be because it was harder to make loaves of bread back in the 1700s than it was in 1900. As a result of technology in farming and food production, the cost of a loaf of bread actually falls from the 1700s to the 1900s. In a stable economy, as the production of bread improves, the cost should go down. Indeed, if not for inflation, we might be paying a penny for two loaves of bread or it may have been necessary to introduce new coinage such as half pennies, quarter pennies or even tenth pennies. However, this wasn't the case after the Federal Reserve was created because suddenly it became easier to come across a dollar.

At the same time, the exchange rate of silver and gold remain approximately the same. I like this example, I'm sure you've heard it. In the Roman times, you could get a nice quality toga, a nice sash, a pair of high quality sandals and a nice haircut in exchange for an ounce of gold. In today's world, you can get a quality suit, a nice belt, a pair of high quality shoes and a nice haircut for about the price of an ounce of gold. You see, the buying power, the exchange rate of gold, has remained the same.

So, why would the fed want to keep printing their "worthless" notes? Well, if those who own the fed have been smart, and I think they have, they've bought and stockpiled tons and tons of stable commodities like gold, silver, copper, palladium, platinum, oil, diamonds, precious gems, etc. with their "worthless" notes. They're busy buying up or legally stealing the real wealth of the common man as I type this. They are acquiring land, houses, other products created and adding these things to their own coffers. Money is not real wealth, it is simply a means of exchange. Real wealth is what we create with the money.

You don't need to consciously "know" what the money supply is to be affected by it. It's a matter of how easy it is to come across a dollar that determines its worth. When the market is flooded with them, they become very easy to come across and prices rise. The buying power of the fiat currency drops. At the same time, there is the give and take of how easy it is to produce a product. It is easier to come across a dollar, for instance, but it is also easier to produce that loaf of bread in mass quantities. Meanwhile, other commodities that can also be used as means of exchange maintain their buying power. The wealthy elite, with their stockpiles of commodities, remain wealthy while the rest of us drown in the flood of dollars they created with the blessings of our politicians.

It ends up being a matter of control. Most of us common folk have nothing to offer as a means of exchange but our labor. If the amount of dollars to buy a loaf of bread becomes so great that we can no longer afford a loaf a bread, we will start to offer up our labor for that loaf of bread. A starving, desperate man will do most anything to get some food for himself and his family. In the end, we will likely even offer up our sweat and our labor for a very small amount of food. The powerful elite will be able to decide who eats and who starves. I fear that is the kind of power these people, the elite, are striving for, and we have helped them along by allowing the central banks of the world to control our money supplies. That's why I feel it's so important to allow competition in the currency market.

After reading that explanation, the gentleman emailing me asked another. He wondered if the elite were out to introduce a world currency and what gold would be worth if they did so. He also mentioned poverty and overpopulation. The following paraphrases my answer to his ruminations.

I certainly don't have the answers, just my opinion. Yes, I believe they are out to create a world currency. In fact, I wonder if they have as much gold in reserve as they say the do, or if they are selling non existent gold to people. That's why, in my opinion, it's important that if you buy gold you physically possess it. As for myself, I buy silver whenever I can, there's more of it and it's more useful to industry. Also, they will have the power to confiscate gold if they need to, like they did in the 1930s.

After driving across this great nation of ours, eastward bound, I no longer believe the hype of overpopulation. It's another propaganda ploy put out there by the elite to excuse their murderous ways. There's plenty of room in this world for everyone, and it can support us just fine. As our population grows, so does the technology to meet our needs. Not to mention, it has been shown that as technology progresses and the standard of living goes up, population growth levels off. The wealth pie is not static. We don't get just so much and then that's it. We created the wealth we have and we will continue to create it as we grow. It is government that I believe causes poverty with their restrictions on markets creating monopolies and preventing competition and innovation and their creative wars that kill and maim so many millions. I don't know what will happen with gold and other precious metals in the future, but I do know that honesty has to be demanded, the fraud has to stop and those responsible for the fraud need to be held accountable for their crimes against humanity.

It is my hope that these explanations help others better understand the fiat money system we currently operate under. My archived articles are available at szandorblestman.com. Please visit there to help support me and my efforts. I also have an ebook available entitled "The Ouijiers" by Matthew Wayne.

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