Will dollar purchasing power and your standard of living erode?
*Texas Straight Talk, by Congressman Ron Paul, September 24, 2012:
''Government pulls the strings behind the scenes. No better
illustration of this can be found than in the Federal Reserve's
manipulation of interest rates.
The Fed has interfered with the proper function of interest rates for
decades, but perhaps never as boldly as it has in the past few years
through its policies of quantitative easing. In Chairman
Bernanke's most recent press conference he stated that the Fed wishes
not only to drive down rates on Treasury debt, but also rates on
mortgages, corporate bonds, and other important interest rates.
Markets greeted this statement enthusiastically, as this means
trillions more newly-created dollars flowing directly to Wall Street.
Because the interest rate is the price of money, manipulation of
interest rates has the same effect in the market for loanable funds as
price controls have in markets for goods and services. Since
demand for funds has increased, but the supply is not being increased,
the only way to match the shortfall is to continue to create new
credit. But this process cannot continue indefinitely. At
some point the capital projects funded by the new credit are
completed. Houses must be sold, mines must begin to produce ore,
factories must begin to operate and produce consumer goods.
But because consumption patterns have either remained unchanged or have
become more present-oriented, by the time these new capital projects
are finished and begin to produce, the producers find no market for
their goods. Because the coordination between savings and
consumption was severed through the artificial lowering of the interest
rate, both savers and borrowers have been signaled into unsustainable
patterns of economic activity. Resources that would have been
used in productive endeavors under a regime of market-determined
interest rates are instead shuttled into endeavors that only after the
fact are determined to be unprofitable. In order to return to a
functioning economy, those resources which have been malinvested need
to be liquidated and shifted into sectors in which they can be put to
productive use.
Another effect of the injections of credit into the system is that
prices rise. More money chasing the same amount of goods results
in a rise in prices. Wall Street and the banking system gain the
use of the new credit before prices rise. Main Street, however,
sees the prices rise before they are able to take advantage of the
newly-created credit. The purchasing power of the dollar is
eroded and the standard of living of the American people drops.''
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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