marxbites

Haywood Analysts: Compelling Opportunities Left in Junior Golds

Would that that would be the good ole USA !!!!!!!!

I am listening to Frank, Hoyer in the House right now.

What a criminal government run by banksters and corp elites we have.

"The general spread of the light of science has already laid open
to every view the palpable truth that the mass of mankind has not
been born with saddles on their backs nor a favored few booted
and spurred, ready to ride them legitimately by the grace of God."

--Thomas Jefferson to Roger C. Weightman, 1826

Screw the establishment ONE PARTY system of criminals. The CFR/NWO/Int'l Banking cabal.

Search and read: A CHRONOLOGICAL HISTORY OF THE NEW WORLD ORDER

& "Wall Street, Banks and American Foreign Policy" at lewrockwell.com or mises.org

BOTH those websites are the tonic we indoctrinates of compulsory education need. Rockwell and Mises are resources for history and economics that squash the mealy mouthed apologist court historians that ruling elites commission to keep their criminal control as hidden as possible.

Week in Review: Drama Galore

Bush & Co ???; as criminal as this admin is - it is NOT responsible for what was built by Democrats & done by the FED.

Clinton, Kerry, Gore, McBama ALL work for the same masters; the CFR/NWO/Fed'l Reserve/Int'l Banking cabal.

You know, the conspiratorial cabal that those kidders Wilson, lifelong Democrat cum Rep, IKE, & JFK lamented and warned the people against, the shadow govt of the MICC?

Found this of interest too:

Gerard Jackson
BrookesNews.Com
Monday 22 September 2008

As the financial crisis unfolds Americans have nothing to fear other than Congress. Ignorant politicians helped create this monetary mess and ignorant politicians will make it worse if they are not stopped. John McCain believes that the fault lies with Wall Street's 'unbridled corruption and greed". Treasury Secretary Hank Paulson took a similar line when he announced: "Raw capitalism is dead". For my money the most amusing condemnation came from the ever-so righteous Thomas Frank1 who pompously wrote:

No, this is the conservatives' beloved financial system doing what comes naturally. Freed from the intrusive meddling of government, just as generations of supply-siders and entrepreneurial exuberants demanded it be, the American financial establishment has proceeded to cheat and deceive and beggar itself — and us — to the edge of Armageddon. It is as though Wall Street was run by a troupe of historical re-enactors determined to stage all the classic panics of the 19th century. (Get Your Class War On, Wall Street Journal, 17September 2008)

Apart from once again revealing an utter ignorance of economics, economic history and the history of economic thought — an ignorance that he shares with Republicans — he also exposed — in between whining about nasty Republicans beating up angelic Democrats — his unreasoning hatred of capitalism and a deep seated loathing for defenders of the free market. The last point is important because critics on both sides of the political divide fail dismally to see that the crisis was actually created by a refusal to allow the free market do its work.

Fanny Mae and Freddy Mac were political creations that were run on the basis of political considerations. Yet the brilliant Mr Paulson seriously claims that their collapse is a condemnation of capitalism.

Nevertheless, Republicans have inadvertently found themselves in the favourable position of being able to take the moral high ground. After all, it was the Democrats led by Pelosi, Reid, Barney Frank and Dodd who confounded President Bush's attempt to reform these entities way back in 2005. And it was Democratic hacks that ran Fanny Mae and Freddy Mac in the interest of the Democratic Party, funnelling millions of dollars into the party's coffers while siphoning off scores of millions for themselves. It's also true that the drive by Democrats to force these 'companies' into making loans to people who were not credit worthy damaged their viability. This in itself was a recipe for financial grief.

If incompetence, political corruption and the unadulterated greed of the likes of Franklin Raines, the Clinton-appointed former head of Fannie Mae from 1998 to 2004, were all there is to it, then America would not be facing a financial crisis.

It ought to be clear that the Fanny Mae and Freddy Mac crisis is part of a larger and far more serious economic crisis, one that few economic commentators foresaw. There is nothing new here; financial crises are as old as banking itself. And every single one of these crises that ripped through economies shared the same characteristic irrespective of time or place. They were all preceded by a credit expansion. That is to say, credit unbacked by real savings. In plain English, monetary expansion.

One now hears constant chatter about billions of dollars being lost or spent on rescues. In fact, we have moved from billions to trillions. But one vital question is rarely or ever asked: Where did all this money come from? Answer: the Fed. Since1980 this bastion of monetary stability has expanded the money supply2 by some 700 per cent. And it is this wild monetary policy that fuelled the speculative frenzies of the '80s, '90s and the Bush administration.

Every speculative frenzy that I know off was triggered by a monetary expansion. Although these frenzies obviously require huge amounts of credit to sustain them the economic commentariat still treat them as if they are a form of mania the roots of which are purely psychological. It was not always so. When writing of the "mob mind" that was still running rampant in stock market in 1928-1929 Benjamin M. Anderson summarised a speech made after the crash to New York State Chamber of Commerce

. . . which discussed, among other things, the phenomenon of the mob mind which had been so manifest in the year and a half that had preceded the crash. The speaker made the generalisation, familiar to social psychologists, that the more intense the craze, the higher the type of intellect that succumbs to it. (Benjamin M. Anderson, Economics and the Public Welfare: A Financial and Economic History of the United States 1914-1946, LibertyPress, 1979, p. 203).

The key to starting speculative booms is the rate of interest. By forcing the rate down below the market rate (the rate at which the demand for and supply of capital are equalised) the central bank creates excess credit that expands the demand for assets. If the rate is kept low enough there eventuates a situation where

it becomes impossible to make even the roughest kind of estimate of the probable rise in prices. Insecure sentiment governs the market; as prices continue to soar and profits are easily earned, the movement may rapidly reach fever-point. There is almost no limit to the rise in prices in spite of the fact that credit becomes more and more expensive. But when prices ultimately come to rest, and the prospect of further profits disappears, the credit position is so strained and the rate of interest is so high as immediately to bring about a contrary movement, which proceeding in analogous fashion may rapidly drag down prices even below their normal level3. (Knut Wicksell, Interest & Prices, Sentry Press, New York, N. Y., 1936, p. 98).

There is virtual agreement among economists (the Austrians are the usually the exception) that the money supply should expand at the same rate as output if a deflation is to be avoided. Firstly, it is plain to see that whatever measure of money supply is used, it would be absurd to deny that it has not risen at a far greater rate than output. Then there is the fact that deflation is not defined by falling prices but a contractionary money supply. As the nineteenth century amply demonstrated, falling prices, economic growth and an expanding job market are perfectly compatible. Even Milton Friedman admitted this when he observed that after the Civil War

[T]he price level fell to half its initial level in the course of less than fifteen years and, at the same time, economic growth proceeded at a rapid rate. The one phenomenon was the seedbed of controversy about monetary arrangements that was destined to plague the following decades; the other was a vigorous stage in the continued economic expansion that was destined to raise the United states to the first rank among the nations of the world. And their coincidence casts serious doubts on the validity of the now widely held view that secular price deflation and rapid economic growth are incompatible. (Milton Friedman and Anna J. Schwartz, A Monetary History of the United States 1867–1960, Princeton, N.J.: Princeton University Press, 1971).

Irrespective of what the likes of Frank and Paulson assert the problem is not the market but disequilibrium caused by ill-advised monetary policies that distort the both the capital and price structures. These policies create a myriad of opportunities to exploit unsustainable 'investment' opportunities that will vanish as soon as the central bank applies the monetary brakes, even if it does so slowly. For instance, the recessions of 1980-1982, 1990, 2000, and the 1994 slowdown were all preceded by a reduction in the rate of growth of the money supply.

However, no matter what evidence one presents in defence of the market, the fanatical likes of Thomas Frank will always blame the market and Republicans.

Note: Fears off a 1930s type of depression are totally unfounded. I shall explain why next week.



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1. So-called American patriots like Frank, Pelosi, Reid, Biden, Dodd, etce., remind me of Roosevelt, another Democrat who always put his party before his country. Before Roosevelt's inauguration Hoover pleaded with him to cooperate in dealing with the banking crisis in an effort to avert further economic suffering. Roosevelt refused. To ensure that the facts would be correctly reported by history Hoover recorded the incident in his memoirs:

A statement of Rexford G. Tugwell (one of Roosevelt's close advisers) is worth repeating. James Rand, a responsible industrialist, ten days before the inauguration, had telephoned me this statement of Tugwell's as a warning. I confirmed his telephone message in the following letter, as I wanted it in the record:

My dear Mr. Rand:

I beg to acknowledge your telephone message received through Mr Joslin as follows:

"Professor Tugwell, adviser to Franklin D. Roosevelt, had lunch with me. He said they were fully aware of the bank situation and that it would undoubtedly collapse in a few days, which place the responsibility of the collapse in the lap President Hoover. . . ."

When I consider this statement of Professor Tugwell's in connection with the recommendations we have made to the incoming administration, I can say emphatically that . . . [they] would project millions of people into hideous losses for a Roman holiday.

Yours faithfully,

HERBERT HOOVER

Some years afterwards, I asked Ray Moley why Roosevelt refused to cooperate with me in the banking crisis. He wrote to me:

I feel when you asked him on February 18th to cooperate in the banking situation that he either did not realize how serious the situation was or that he preferred to have conditions deteriorate and gain for himself the entire credit for the rescue operation. In any event, his actions during the period from February 18th to March 3d would conform to any such motive on his part. (Herbert Hoover, The Memoirs of Herbert Hoover: The Great Depression 1929-1941, The MacMillan Company: New York, 1952, pp. 214-15).

2. The Austrian definition of money: currency component, all checkable deposits, savings deposits, U. government demand deposits and note balances, demand deposits due to foreign commercial banks, and demand deposits due to foreign official institutions. (Some Austrians exclude savings deposits because they are immediately lent out and are therefore not available on demand.)

The Austrian definition of money is in keeping with Walter Boyd's classic definition:

By the words 'Means of Circulation', 'Circulating Medium', and 'Currency', which are used almost as synonymous terms in this letter, I understand always ready money, whether consisting of Bank Notes or specie, in contradistinction to Bills of Exchange, Navy Bills, Exchequer Bills, or any other negotiable paper, which form no part of the circulating medium, as I have always understood that term. The latter is the Circulator; the former are merely objects of circulation. (Walter Boyd, A Letter to the Right Honourable William Pitt on the Influence of the Stoppage of Issues in Specie at the Bank of England, on the Prices of Provisions, and other Commodities, 2nd edition, T. Gillet, London, 1801, p. 2).

3. Wicksell points out that even if rates are not lifted the speculative frenzy will burn itself out.

Gerard Jackson is Brookesnews' economics editor

The Bedrock Case for the Return of the Gold Bull

Thomas Jefferson
"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."

Alan Greenspan - “Gold and Economic Freedom” 1967
"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. . . . This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

Rothschild Brothers of London communiqué to associates in New York June 25, 1863
"The few who understand the system, will either be so interested in its profits, or so dependent on its favors that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantages...will bear its burden without complaint, and perhaps without suspecting that the system is inimical to their best interests."


Curtis Dall, son-in law of Franklin Roosevelt wrote a book called FDR: My Exploited Father-in-Law in which he stated:

"For a long time I felt that FDR had developed many thoughts and ideas that were his own to benefit this country, the U.S.A. But he didn't. Most of his thoughts, his political 'ammunition' as it were, were carefully manufactured for him in advance by the CFR [Council on Foreign Relations] - One World Money Group. Brilliantly with great gusto, like a fine piece of artillery, he exploded that prepared 'ammunition' in the middle of an unsuspecting target, the American people--and thus paid off and retained his international political support."*

Is the Price of Gold Artificially Depressed?

The dollar is garbage because they've printed away 98% of it's purchasing power since 1913.

1932 1oz gold = $20

2008 1oz gold = $1000

Meaning it's 1/50th or 2% of it's gold backed buying power.

And yet an oz of gold buys comparatively the same amount of goods or services today as it did 2000, or 100 years ago.

The International Gold Rush: Bulls May Soon Be Rewarded

You can blame gold's being sold down by paper trading of the Central banks who least want us to understand just how bad a shape the worldwide fiat currencies are.

Dig: In 1932 $1 = 1/20th oz gold

Today $1 = 1/1000th oz gold

A 20:1 ratio has become a 50:1 ratio, ergo a $1 buys 1/50th of what it could in 1932.

1/50th = 0.02 = $0.02 cents/$1 of buying power today.

Do you think the FED will keep printing as do most of the saavy, or will it call in dollars from all over the world to raise the $1's purchasing power?

History proves the ratchet is always the former, IE the FED has stolen 98% of the people's wealth via inflation thus far.

Only saps can think it will change it's shylock thieving ways.

The Ben & Hank show is just in it's beginning scenes.

Per the Maestro himself:

Alan Greenspan - “Gold and Economic Freedom” 1967

"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. . . . This is the shabby secret of the welfare/(warfare) statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

The PEOPLE'S property that is.

The International Gold Rush: Bulls May Soon Be Rewarded

Just watch Edward Griffin's video on youtube;

"The Creature From Jekyll Island; Revisiting the Federal Reserve"

Then if that snks in go to mises.org for even more in depth history and economics from the Austrains that foretold the fiat enabled rise of the Euro-statists our progressive era policies & Fed were modled after!

What a country of sheeple being merrily led to their own slaughter.

Thing is I was baaaaaing not too long ago myself, before getting myself the education govt purposely denied me and all Americans.

A Warning for U.S. Dollar Bears and Commodity Bulls

Is the Fed an Inflation Fighter or Creator?
By Frank Shostak
Posted on 10/25/2005

Every few days, a senior Fed official expresses concern regarding the effect of high gasoline prices on inflation. These comments are always phrased in the way a meteorologist would report on the weather, as if the phenomenon in question is an act of nature. Even stranger, these statements imply that only the Fed can hope to save us from this natural disaster.

To invoke another metaphor, this is like the cook who bakes a poison pie and then arrives on the scene of grave sickness, claiming to be the medic with the antidote.

It is the Fed that creates, not cures, inflation. The surest way to stop it is to stop the printing presses—something that a government with massive debt and the desire to sustain a boom is not likely to do.

The Fed’s latest warnings began on September 5, 2005, when the retail price of gasoline climbed to $3.069 per gallon—an increase of 72.6% from early January of this year.

They believe that the decisive factor in the setting of an inflationary spiral is people’s inflationary expectations. This causes workers to press for higher wages. Businesses try to recoup these wage increases by pushing the prices of goods and services higher. This ignites inflation, or so it is believed.

On October 19, 2005, the President of the Dallas Federal Reserve, Richard Fischer, said at a luncheon in Houston, "I will not waver from advocating policy that discourages expectations of higher core inflation. The object will always be to keep inflation at bay, so that the American business machine can keep on humming."

It is inflationary expectations, so they believe, that keep inflation going once inflation is triggered. Also, once expectations are set in motion it is not easy to get rid of them.

On October 20, 2005, the President of the St. Louis Federal Reserve, William Pool, told reporters, "If confidence in price stability starts to erode and inflation expectations begin to develop, it can be painful and long to reverse those expectations. Undoing inflationary expectations can be a matter of a couple of years."

Consequently, he believes that the Fed must raise interest rates enough to keep inflationary expectations well contained. He also added that, "if we were to end up overshooting on the federal funds rate target on the high side and we found that the economy slowed more quickly than anticipated then cutting rates could restore growth relatively quickly."

On October 21, 2005, the President of the Federal Reserve Bank of Richmond, Jeffrey Lacker, told reporters that he is increasingly worried about inflation and the prospect that higher energy prices will filter through into other goods. "My concern about inflation is distinctly higher now. We are facing the prospect now of the possibility of the energy price surge passing into core prices."

The latest data gives credence to the Fed officials’ concerns. The rate of growth of the producer price index which excludes energy prices jumped to 0.6% in September after falling 0.1% in August. Year-on-year the rate of growth climbed to 2.4% in September from 2.2% in the previous month and 1.7% in June.

Furthermore, year-on-year the consumer price index rose by a massive 4.7% in September. Additionally, according to a closely watched survey by the University of Michigan, consumers' expectation of inflation 12 months ahead jumped to 4.6% in early October from 3.1% in August.

On account of these developments, it is believed, the Fed must show leadership and act as soon as possible against emerging inflation. Once people see that the Fed is a serious inflation fighter this will calm down inflationary expectations and will keep inflation at bay, or so it is held.

What is inflation all about?

In a market economy, money enables the goods of one specialist to be exchanged for the goods of another specialist. For instance John the baker has produced ten loaves of bread, which he has exchanged for ten dollars. He then uses the ten dollars to buy twenty tomatoes from a farmer Bob. Note that in order to acquire twenty tomatoes John had to produce ten loaves of bread first. In short, his consumption of tomatoes is fully backed up by the production of bread. Also, note that the money here is honestly earned and hence fully backed up by John’s production of bread. Or we may also say that here we have a case where something useful is exchanged for money and money in turn is exchanged for some other useful thing—something is exchanged for something else by means of money.

Let us now consider a case of a counterfeiter—call him Charlie—who instead of producing something useful has created ten dollars by means of printing these ten dollars. He then uses these dollars to buy twenty tomatoes from Bob the farmer. His counterfeiting amounts to an "exchange" of nothing (since Charlie hasn’t produced anything economically useful) for ten dollars, which is in turn exchanged for twenty tomatoes.

Consequently, by means of money, which was created out of "thin air," Charlie the counterfeiter can consume without any production. Note that the money here, which was created out of "thin air," is not supported by any production of useful goods or services. Or we can also say that here we have a case where nothing useful is exchanged for money and money is exchanged for useful things—nothing is exchanged for something useful by means of money out of "thin air."

By creating money out of "thin air," Charlie the counterfeiter has in fact boosted or inflated the stock of money. This inflation of money in turn has enabled Charlie to secure tomatoes at the expense of a genuine wealth producer John the baker. In other words, while John the baker has contributed to the pool of funding, i.e., the pool of final goods this is not the case as far as Charlie the counterfeiter is concerned—he is consuming final goods without putting anything useful to the pool of these goods.

It follows then that the diversion of real wealth from wealth generators to non-wealth generators by means of increases in the money supply is what inflation is all about. Or we can say that inflation is about the economic impoverishment of wealth producers, which is set in motion by means of inflating the stock of money.

Through the increase in money supply, Charlie the counterfeiter adds an extra demand for goods and services without making any contribution to the production of goods and services. In short, the new money that Charlie created together with the previous money is now chasing an unchanged stock of goods.

Now, a price is the amount of dollars paid per unit of a good. Hence with more money now chasing a given amount of goods it implies that the price, i.e., the amount of dollars now paid for a unit of a good, has risen. Note that a general increase in prices here took place as a result of the inflation of the money stock.

Observe that the fall in the purchasing power of money, i.e., general increase in prices, is not what triggers the economic impoverishment of wealth generators. The trigger is the creation of money out of "thin air," or the inflation of the money stock. A general increase in the prices of goods and services is merely the symptom of the inflation of money, i.e., the manifestation of inflation. In short, a general increase in prices reflects the fact that increases in the money supply, i.e., money out of "thin air," have given rise to nonproductive consumption.

Note what we are not saying. We don’t say that inflation is the increase in prices caused by increases in money supply. What we are saying is that increases in money supply is what constitutes inflation.

What is wrong with the popular definition of inflation?

According to Mises,

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation.

In short, what today is called inflation is the general rise in prices, which is in fact only the outcome of inflation. Consequently, anything that contributes to price increase is called inflationary and therefore must be guarded against.

Thus a fall in unemployment or a rise in economic activity are all seen as potential inflationary triggers and therefore must be restrained by central bank policies. Some other triggers such as rises in commodity prices or workers wages are also regarded as potential threats and therefore must be always under the watchful eye of the central bank policy makers.

If inflation is indeed just a general rise in prices, why is it regarded as bad news? What kind of damage does it do? Mainstream economists maintain that general price increases cause speculative buying, which generates waste. Inflation, it is maintained, also erodes the real incomes of pensioners and low-income earners and causes a misallocation of resources.

Despite all these assertions regarding the side effects of what they define as inflation, mainstream economics doesn’t tell us how all these bad side effects are caused.

Why should a general rise in prices hurt some groups of people and not others? Why should a general rise in prices weaken real economic growth? Or how does inflation lead to the misallocation of resources? Furthermore, if inflation is just a rise in prices, surely it is possible to offset its bad side effects by adjusting everybody’s incomes in the economy in accordance with this general price increase. However, once it is established that inflation is about the destruction of the process of wealth generation then all the above questions are easily answered.

We have seen that increases in the money supply set in motion an exchange of nothing for something. They divert real funding away from wealth generators toward the holders of the newly created money. This is what sets in motion the misallocation of resources, not price increases as such, which is only the manifestation of this misallocation.

Moreover, the beneficiaries of the newly created money, i.e., money out of "thin air"—are always the first recipients of money, and so they can divert a greater portion of wealth to themselves. Obviously, those who either don’t receive any of the newly created money or get it last will find that what is left for them is a diminished portion of the pool of real funding.

Additionally, real incomes fall not because of general rises in prices, but because of increases in the money supply, which gives rise to nonproductive consumption. In other words, inflation depletes the real pool of funding, which undermines the production of real wealth—i.e., a lowering of real incomes.

General increases in prices, which follow increases in money supply, are an indication that the erosion of peoples’ purchasing power has taken place. It is not the symptoms of a disease but rather the disease itself that causes the physical damage. Likewise, it is not a general rise in prices but increases in the money supply that inflict the physical damage on wealth generators.

Can inflationary expectations trigger a general price rise?

Recall that according to popular thinking, workers' expectations for higher inflation make them demand higher wages. Increases in wages in turn lift the cost of producing goods and services and force businesses to pass these increases on to consumers by raising prices. It is true that businesses set prices and it is also true that businessmen while setting prices take into account various costs of production. However, businesses are ultimately at the mercy of the consumer who is the final arbiter.

The consumer determines whether the price set is "right," so to speak. Now, if the money stock hasn’t risen, consumers won’t have more money to support the general increase in prices of goods and services. (Remember, that a price is the amount of money per unit of a good).

Consequently, a strengthening in inflationary expectations cannot by itself set in motion a general increase in prices. After all the realization of expectations has to go through the monetary channel. So irrespective what people’s expectations are, if the money supply hasn’t increased then peoples monetary expenditure on goods cannot increase either. This means then that no general strengthening in price increases can take place without an increase in the pace of monetary pumping.

By the same token, a strengthening in gasoline price rises cannot by itself set in motion a stronger rate of increase in general prices. Without the strengthening in the rate of growth of money supply relative to the rate of growth of goods there can’t be a general strengthening in price rises.

However, one could argue that a rise in inflationary expectations will cause the lowering of the demand for money, which with all other things being equal, will result in the decline in money’s purchasing power, i.e., a general rise in prices. However, what does a change in the demand for money have to do with inflation?

Inflation as we have seen is an increase in the money supply that leads to economic impoverishment through the increase in nonproductive consumption. There is however, nothing wrong with changes in the demand for money. This is no different from changes in the demand for any good. The fact that people want to hold less money doesn’t give rise to nonproductive consumption that sets in motion a process of economic impoverishment.

Likewise inflation is not about increases in money supply in excess of the demand for money. According to this way of thinking, as long as the increase in money supply is fully backed up by the demand for money there is no inflation. Note also, that in this way of thinking inflation is regarded as a general rise in prices. However, irrespective of the demand for money, once the money supply increases it sets in motion a process of impoverishment, which also sets in motion the dreadful boom-bust cycle.

It follows that the popular view, which asserts that by means of transparency the Fed can prevent rises in inflation, doesn’t hold water. Irrespective of how transparent the Fed is, what matters here is the rate of increase in the money supply. It is rises in the money supply that cause the physical damage to the process of real wealth formation irrespective of the Fed’s transparency.

Imagine that somehow the Fed did manage to convince people that central bank policies are aimed at stopping inflation and maintaining price stability, yet at the same time the central bank also raises the rate of growth of money supply. So even if inflationary expectations were stable the destructive process will be set regardless of these expectations on account of the increase in the rate of growth of money.

Note that people’s expectations and perceptions cannot offset this destructive process. It is not possible to alter the facts of reality by means of expectations. The damage that was done cannot be undone by means of expectations and perceptions.

Is the Fed an inflation fighter?

Between January 2001 and June 2004, the Fed had pursued an aggressive lowering of the federal funds rate target. The target was lowered from 6.5% to 1% by June 2003. To attain a given federal funds rate target, the Fed must constantly manage the flow of money to financial markets. Changes in the Federal Reserve’s balance sheet, also known as Federal Credit, depict the variability in the monetary pumping to sustain a given federal funds rate target.

Thus, to support a lower fed-funds rate target the yearly rate of growth of Fed Credit jumped from 0.7% in January 2001 to 12% by September 2001. Furthermore, during most of the 2003 period the rate of pumping by the Fed stood in excess of 9%.

The effect of Fed’s pumping is manifested by the up-trend in the growth momentum of the CPI since June 2002 (see chart). Note that the general rise in prices as depicted by the rate of growth in the CPI is driven by the past actions of the Fed.


By responding to the symptoms of inflation that the Fed has itself created the US central bank gives the impression that it fights inflation. Once it is realized that inflation is increases in the money supply, it becomes obvious that the source of inflation is the Fed and fractional reserve banking. It also becomes obvious that rather than fighting inflation, it is the Fed itself that generates the inflationary process. On this Mises wrote,

To avoid being blamed for the nefarious consequences of inflation, the government and its henchmen resort to a semantic trick. They try to change the meaning of the terms. They call "inflation" the inevitable consequence of inflation, namely, the rise in prices. They are anxious to relegate into oblivion the fact that this rise is produced by an increase in the amount of money and money substitutes. They never mention this increase. They put the responsibility for the rising cost of living on business. This is a classical case of the thief crying "catch the thief." The government, which produced the inflation by multiplying the supply of money, incriminates the manufacturers and merchants and glories in the role of being a champion of low prices.

It is amazing that almost forty years ago the champion of present inflationary policies, Fed Chairman Alan Greenspan wrote the following,

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

Conclusions


Devastating: $5
For the past several weeks, Fed officials have warned the public about the growing inflation threat. Officials blame the growing risk of inflation on the rising price of gasoline as a result of the rise in crude oil prices and hurricane Katrina. Despite all this Fed officials are resolute that it is their duty to protect the US economy from the inflation menace.
According to officials, what is needed to counter the looming inflation threat is to prevent an acceleration in inflationary expectations. This, it is held, can be achieved by pursuing a transparent and credible policy to counter inflation. It is overlooked by most experts that the source of inflation has nothing to do with the high price of oil and high gasoline prices.

The main source of inflation is the Fed itself. Various measures that Fed officials are promising to employ in the fight against inflation rather than fixing the problem will make things much worse. These policies only generate a further misallocation of resources, which in turn undermines the process of wealth generation.



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Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to Mises.org. Send him MAIL and see his outstanding Mises.org Daily Articles Archive. Comment on this article on the Mises Economics Blog.