Monty Pelerin's World

Economics, Finance and Politics Through The Prism of Classical Liberalism

The Fed Is Nothing But An ATM Machine

The Fed has reached the point where there are two choices — Allow the government to shut down or allow itself to be the Treasury’s ATM machine.

Inflation is, as Milton Friedman was fond of saying, “always and everywhere a monetary phenomenon.”  It is insidious. friedman-miltonIt becomes a part of everyday life, sometimes overlooked. It is cumulative and devastating. The US dollar has lost 96% of its purchasing power since the formation of the Federal Reserve in 1913. Most of that loss occurred from the late 1970s. The US abandoned Gold as backing for its currency in 1971, which left the entire world on fiat currency, unbacked by anything but government promises. inflationValueOfOne1913Dollar

The American worker was clobbered during the past 30 plus years, whether he realized it or not. Today’s real weekly wage is below that of 1966. It has been so since 1977. During the late 1970s and early 1980s inflation was more than insidious, it was blatant. Mortgage rates, the prime rate and inflation rates rose well up into double digits. Inflation then was not some mild background music to life. It was a cacophony. As Reagan described it: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

We are likely now on the eve of an inflation that will make the Carter-Reagan era appear mild. The political class and their actions assure that.

This chart shows rather dramatically what has happened to the Monetary Base. In late 2008, it more than doubled in three months. As of last month, the monetary base had grown to over $2.2 Trillion, a record and almost a tripling in one year! This rate of  growth is unprecedented in this country and has usually preceded hyperinflation in other countries. Were there not mitigating circumstances, one might expect the total money supply and the general price level to triple shortly.  TO CONTINUE READING CLICK HERE