The Great Inflation Swindle

“Allow me to control the issue and the nation’s money and I care not who makes its laws!”
— Amshell Rothschild

Wouldn’t you feel robbed if you had a savings account and found out that your banker was regularly embezzling small amounts over the years so you didn’t notice it missing? Well that is exactly what your banker has been doing for the past 90 years. While the medieval alchemists failed at converting lead into gold, the modern banking system succeeded by being organized for converting worthless paper into valuable money. From the Federal Reserve website:

The Federal Reserve Act presented by Congressman Carter Glass and Senator Robert L. Owen incorporated modifications by Woodrow Wilson and allowed for a regional Federal Reserve System, operating under a supervisory board in Washington, D.C. Congress approved the Act, and President Wilson signed it into law on December 23, 1913. The Act, "Provided for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.

The term “elastic currency” is a euphemism for legalized counterfeiting; it is a concealed tax. The Federal Reserve System was set up as a corporate banking cartel with the responsibility of ensuring adequate funding for federal government deficits and for general bank borrowing. This allows the federal government to maintain the illusion that taxes are low. When they sell bonds to the general public to cover deficit costs, there is no change in the money supply. But whenever debt is unsold, the Federal Reserve makes a deposit to the government’s bank account. The effect is the same as raising the supply of money by the printing press. Diluting the money supply with paper is morally equivalent to diluting the milk supply with water.

In a fiat paper money system, the money supply represents debt: principal and interest. If there were no debt, there would be no money. In addition to government debt, the fractional reserve system has a multiplier effect. Say you deposit your tax refund in your local bank. Your local bank is entitled to loan out a multiple of your deposit. It could be ten times or more. So then when your neighbor take out a loan to say buy a car, the money supply is expanded by the amount of the loan. There are other ways by which the money supply expands, but I’m keeping this simple for the sake of discussion.

Inflationary cycles have a finite life. They can end in two ways. As general prices rise, it gives the appearance of increased wealth. And that is why it is so popular among Americans. (Actually, the dollar gained by some is equal to the loss by others.) The problem is, once started it eventually runs out of control. The loss of purchasing power is mathematically limited to zero. Second, the money supply represents debt: principle and interest. If the principle isn’t paid down, the interest compounds each year—like 10% of 10% of 10% until it approaches infinity. The first case results in hyperinflation and the second case, debt collapse. It can’t be predicted how this will end.

The gist of the scheme is as old as the history of money. Before paper money, the Romans shrunk the size of their old coins and made new coins. Before checking accounts, during the 1920s, the German Weimer Republic printed money at such a high rate that it became more valuable as heating fuel. These two examples are representative of countless times it has been tried, all with the same result: the money eventually becomes worthless. It’s happened twice before in this country, the Continental during early American days, and the Confederate dollar.

Americans are used to inflation and they are comfortable with it. Inflation will go on forever they think. They could not be more wrong. The history and causes of currency debauchery are known to those who will look. Inflation has never lasted indefinitely, it cannot last indefinitely. It is not a matter of if; it is a matter of when. This one began in the 40s and in all probability will end by 2010. If that estimate is wrong, these charts should tell you that it is not far off.

Price verse value

The invention of money arose out of the need to eliminate the inconvenience of barter. It would necessarily have to be another commodity that is readily accepted by traders as a common standard of value. It could and has been at times, pelts, cocoa beans and basic metals. Gold and silver evolved as the most universal standard among nations because of its high value, rarity and imperishability. Gold emerged superior to silver because it is inert and doesn’t corrode. The invention of coins began during early biblical times in Asia Minor and Greece. Coins were successful because they where pre-weighed and certified with the king’s stamp. The point here is that the tradition of real money is based on a tangible commodity. The tangible value of a piece of paper is almost zero.

To demonstrate how the relative value of commodities hardly changes while paper money loses its purchasing power, I’ve found a list of prices during 1964 in American Heritage Magazine. Wouldn’t it be great if we could buy goods at 1964 prices with 2007 wages?

Let’s compare 1964 prices to today’s consumer prices with gold. During 1964, gold was priced at $35 an ounce. At this writing it is $630 an ounce, the same gold, 18 times the 1964 price. A $.15 slice of pizza costs $1.00 a slice today, an increase of 7 times. L.L Bean shoes are priced at $90, 6.5 times over $12.85. The price of gasoline has gone from $.27 to $2.70, 10 times. The Mustang went from $2,368 to $23,680, ten times. A pack of cigarettes from $.50 to $5.50 increased 11 times. A postage stamp from $.06 to $.39 went up 6.5 times.

Though the price of homes has increased almost on par with gold at this writing, it is important to remember that the housing market is starting to decline while the gold and silver market is coming out of a 20 year slump. Though gold doesn’t pay interest, it doesn’t carry property tax, maintenance and insurance costs. Unlike housing, there is always a fluid market for gold and silver.

The Standard and Poor’s stock average was about 75 in 1964. Today it is about 1450, an increase of 19 times. Here too we have to keep in mind that stocks are at historically high P/E ratios and haven’t surpassed the 2000 high. It’s as dangerous to buy stocks today as it is to buy a house.

We have seen that dollars buy less over the years while gold buys more. That is why over time it has proved to be real money, money immune from government manipulation, money that beats inflation, money that Americans have been weaned from and are afraid to own, at least now.

The Home

Three-bedroom ranch house in Parsippany, New Jersey: $23,000
Three-bedroom, two-bath house in Crystal Lake, Illinois: $20,900
Four-bedroom, two-bath house in South Bend, Indiana: $16,000
“Penthouse view” in doorman building on East Sixty-ninth Street, Manhattan: $245 per month
Furnished apartment with heated pool “convenient 10 minutes to Long Beach or Los Angeles,” two bedrooms: $120 per month
GE washing machine: $169
GE dryer: $99.95
Sears 16.5-cubic-foot refrigerator: $349

Food & Drink

Hershey chocolate bar: $.05
McDonald’s hamburger: $.15
Slice of pizza: $.15
Sabrett’s hot dog: $.15
Cup of coffee: $.10

Clothing

Men’s Dacron and cotton suit: $45
Jockey T-shirts (three): $4.39
Thom McAnn “upholstered” leather shoes: $9.95
Ranger Oxford shoes from L. L. Bean: $12.85
Rainfair cotton raincoat: $32.50
Fruit of the Loom boxer shorts: $.69

Transportation

Honda 50 motorbike: $245
Ford Mustang: starting at $2,368
Volvo sedan: starting at $2,330
Gasoline (gallon of regular): $.27

Miscellaneous

First-class postage stamp: $.06
Pack of Camel cigarettes: $.50
>Term’s tuition at Syracuse University, Syracuse, New York: $750
Year’s tuition at Davidson College, Davidson, North Carolina: $1,815
Year’s tuition at Harvard College, Cambridge, Massachusetts: $2,400
Typical visit to a doctor’s office: $25
Further reading

American debt totals $48 trillion. If you are still not convinced that American debt is perilously close to breakpoint, take a look at these charts.

Grandfather Economic Report The author is concerned about the debt being passed on to the next generation. The charts and information on this site are the best I’ve seen. His calculations come up with the finding that government spending and regulations consume 66% of the American economy.

The Dow's Phony New High

If you calculate the Dow using real money - gold - you find an even worse picture. Measured in Gold, today's Dow is equivalent to only about 5,100! Using an average gold price of $275 in 2000, we establish our year 2000 benchmark: 10,750/275= 39. Using today's gold price of $580, we have 10750/580=18.5. From 39 to 18.5 is a 52.5% drop, which is equivalent to only Dow 5K!

Gold was fixed at $35/oz until August 15, 1971, when President Nixon severed the connection between gold and the dollar. By 1980 it topped at 680 and went into decline. It bottomed out at 260 in 2000 and has been in ascent ever since.

Hyperinflation in Germany, 1914-1923

Fiat Money History of the US

Secrets of the Federal Reserve

Money

Say’s Law in its simplest form says that wealth comes from producing more than you consume. Keynesian theory, the current operating paradigm, favors consumption over production. When you consume more wealth than you create, it is only a matter of time before you run out of wealth.

The Creature from Jekyll Island, the history of the Federal Reserve and its purpose to deceive Americans about the real costs of government spending.

The Case Against the Fed

What Has Government Done to Our Money?