Thursday, February 10, 2011

Something Just isn't Right, Monetary Inflation - a Dangerous Byproduct of Economic Engineering

2/10/2011 Portland, Oregon – Pop in your mints…
Something just isn't right.  This phrase entered the thoughts of many this past Sunday as Christina Aguilera belted out the national anthem.  Aguilera chose to remove the ramparts completely from it and inserted the decidedly smoother lyric of the first verse.  A minor error in an otherwise stellar performance that many Americans seem unable to forgive.
If only Americans were so particular about their money!  Only recently have they begun to ask why are prices rising?  What is inflation, anyway?  Ben Bernanke, in his testimony yesterday before the House Budget Committee, stated again that he didn't see any inflation.  Of course, he is arguably paid not to see it so he too may be excused for simply playing his part.  

Apparently commodity markets have erred and thousands are rioting in the middle east for no apparent reason.  Inflation, according to Mr. Bernanke and his colleagues at the Federal Reserve, is perfectly under control.  He even promised that, if prices looked like they were getting out of control, He and his colleagues would quickly get them under control.  What a relief!
We have a News Flash for Mr. Bernanke:  PRICES ARE SPIRALING OUT OF CONTROL!
Not that He will pay any attention.  You see, Mr. Bernanke is currently the chief engineer of the global economy.  He and his colleagues have direct control over who gets their hands on money, the most important resource because it can be used to acquire every other resource.  This control leads to indirect control of nearly every productive process on the planet.
How does he engineer it?  Oh fellow taxpayer, it is easier than you may think.  Through a series of unique circumstances, the world has come to rely on the US Dollar as its primary reserve currency.  In other words, it is what the world keeps as savings.  Why does the world keep its savings in dollars?  It is because an ever increasing amount of the world's expenditures are required to be paid in dollars, at least at first.  All important futures contracts such as oil, grain, gold, and the US National Debt must be settled in US Dollars.
In 1913, the Federal Reserve was create to essentially "manage" the Gold backed US Dollar.  The FED has used this position of privilege to systematically destroy over 95% of the dollar's value since then.  

This brings us back to the current engineer, Mr. Bernanke.  Via the FED Target rate and more recently Quantitative Easing (QE), The Federal Reserve exercises its direct control over who receives any new US Dollars that are being created.  This is simply the first step in the pyramid scheme that passes as a monetary system in the Engineered economy.  Directly underneath the FED in the pyramid are its member banks.  Certain foreign central banks occasionally rise to the member bank level of the pyramid as well, via the currency swap lines that were set up by the FED at the depths of the financial crisis.  

Underneath this tier of the pyramid, customers of those banks and consequently every other bank and human being on the planet, find themselves constantly jockeying for a higher position on the pyramid.

The US Dollar Pyramid Scheme
From their privileged position atop the pyramid, the FED and its member banks control the flow of US Dollars.  Their justification for occupying this perch is that the FED always knows what is the appropriate amount of money and credit and consequently what is the appropriate amount of economic activity that needs to take place on the planet.
Does that seem like a natural, pure way to run a global economy?  We don't think so, either.
Inflation in the money supply, which we define as an increase in the money supply without an corresponding increase in productivity, is a condition that can occur only in the test tube of an Engineered Economy.
In the fresh, non-USDA Organic Economy, money and money substitutes are allowed to naturally evolve, grow, and be destroyed as nature intended, without the aid of pesticides like reserve requirements and QE supplements.  In the approximately 7,000 years that man has inhabited the earth, he has found that Gold and Silver serve the role of money almost perfectly.  Because of the labor intensive process that is required to mint coinage of Gold and Silver, it is produced in harmony with all of the other commodities and factors of production.  No engineering required, just consumer demand and the rest takes care of itself!
As a rule, in an Organic economy, monetary inflation does not exist!  What people call inflation is simply an imbalance in the production of money, one that is quickly remedied by attracting or repelling entrepreneurs and capital into or out of that line of production.

So there you have it.  Perhaps instead of always begging the FED to "Show me the Money!", Americans would be wiser to live by the Organic slogan "Know your farmer, know your food."
We leave you today with our favorite botched national anthem performed by none other than Leslie Nielsen:

Stay Fresh!
P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!
Key Indicators for Thursday, February 10th, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.