Sharon Secor

Refuse To Bow To The Illegitimate Power Of The State

More About: Federal Reserve

Inflation – How The Fed Picks Your Pocket and Raids Your Bank Account

The Federal Reserve is the central bank of the United States and controls national monetary policy. The Fed, not to be confused with the federal government of which it is not a part, also picks your pockets and raids your bank accounts.
 
“The Constitution,” said Ron Paul in a January 11, 2010, article, “gives Congress the authority to oversee the integrity of the monetary unit.  We have unwisely and unconstitutionally delegated this authority to the Federal Reserve, which has in turn devalued our dollar by 95 percent and counting.”
 
When the United States spends more than the tax dollars it collects from its citizens, something it does will all too predictable regularity, it resorts to the sale of United States Treasury Securities, the sale of debt in the forms of such financial instruments as Treasury bills, bonds, and notes. The various types of Treasury Securities come with different interest rates and maturity dates, meaning when they can be cashed in.
 
Foreign nations and investors can only buy so many securities and often the rate of government spending outpaces the rate at which the government can pull money from these sources. Periodically, the Federal Reserve steps in to quench government’s thirst for spending money.
 
While foreign nations and investors use money that is already a part of the monetary system to buy their Treasury Securities, the Federal Reserve does not. They are allowed to create money in a means similar to the “Let there be light” mode of Biblical fame. From nothing, comes dollars. Billions of them. Trillions of them. Though, in this era of electronic money transfer, it may be a good long time before these mystical, out of thin air dollars actually take the physical form of paper.
 
However, physical dollars or not, the Federal Reserve, which made record breaking profits in 2009, “earns” interest on those dollars it is Congressionally blessed with the ability to create. And, while engaged in this process of creating money and earning interest, the Federal Reserve is devaluing the cash you have in your pocket and reducing the worth of the money in your bank account.
 
That occurs via inflation, referred to by many as the hidden tax. Inflation is the reduction of the spending power of the dollar. Each dollar the Fed creates makes the ones you already have in your bank account and pockets worth less because the more dollars, now merely a faith-based financial tool, no longer backed by hard assets, such as gold – the less value they have. Inflation punishes savers by making their savings worth less, penalizing them for engaging in good financial planning.
 
Part of the inflationary process is the means by which this newly created by the Federal Reserve money moves into the system, typically via fractional reserve banking. What that means is that when that new Fed money is deposited in banks or loaned directly to banks by the Federal Reserve Bank, the banks only have to keep a very small proportion of the money necessary to cover deposits, meaning that if everybody who had money in the bank wanted their money on the same day, they wouldn’t have near enough to cover it.
 
The rest is loaned out, banks earning interest. When the Fed creates a dollar, by the time that dollar winds its way through the banking system, each bank and its fractional reserve system allowances, being lent out again and again, that dollar has become 10 or more dollars, inflating the money supply. The “money” in this supply, however, isn’t based on anything but debt, money owed for loans made, often having no physical existence at all. With the expansion of the money supply comes inflation.
 
What the Fed does affects you in a very real way, a way that can clearly be measured in dollars and cents. They have power over your pocket, yet you have no power over them. You can’t vote them out of office. You can’t keep them from stealing your money. It just doesn’t seem right that this should be so. Blatantly unconstitutional, clearly against the founding fathers’ vision for America, citizens should not allow this direct theft of their hard earned money to continue.
 

2 Comments in Response to

Comment by Brock Lorber
Entered on:

Pastor Rendahl:

You are correct only to the extent that the credit is held within the bank that created it on a line of credit, for example.

Once the multiplier has run its course, however, there is no reclaiming of that effect.  There is a creation of 9x the underlying capital and, if that capital goes to zero, an infinite multiplier.

Assuming, of course, contracts, which is a piss-poor assumption today.

Comment by Robert Rendahl
Entered on:

Of course, deposits created out of thin air can also disappear back into thin air when the debts underlying the deposits get defaulted on, and the banks have to write down the loans.  Repeat that on big-ticket items like housing, running hundreds of thousands or millions of dollars each, millions of times across the nation, and suddenly there is a lot less credit in the sum of currency plus credit.  Debt destruction, the same as credit destruction, acts like money destruction, which is the essence of deflation - the final collapse of a credit-fueled expansion.


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