Is anyone in Congress NOT hiding the Fed's devaluation of savings and purchasing power?
*Texas Straight Talk, Congressman Ron Paul, December 4, 2006:
"Monetary Inflation is the Problem
The financial press reported last week that the value of the U.S.
dollar plummeted to a 14-year low against the British pound, and
weakened against the Euro and Yen. Many financial analysts predict
continued rough times for the dollar in 2007, given reduced
expectations for economic growth at home and less enthusiasm among
foreign central banks for holding U.S. debt.
This decline in the value of the dollar is simple to explain. The
dollar loses value as the direct result of the Federal Reserve and U.S.
Treasury increasing the money supply. Inflation, as the late Milton
Friedman explained, is always a monetary phenomenon. The federal
government consistently wants to spend more than it can tax and borrow,
so Congress turns to the Fed for help in covering the difference. The
result is more dollars, both real and electronic-- which means the
value of every existing dollar goes down.
Federal Reserve Chairman Ben Bernanke faces two basic ongoing choices:
raise interest rates to prop up the dollar, but risk pushing the
economy into a recession; or lower interest rates to stimulate the
economy, but risk further declines in the dollar. This unfortunate
dilemma is inherent with a fiat currency, however.
Of course Mr. Bernanke inherited this tightrope act from his
predecessor Alan Greenspan. The Federal Reserve did two things to
artificially expand the economy during the Greenspan era. First, it
relentlessly lowered interest rates whenever growth slowed. Interest
rates should be set by the free market, with the availability of
savings determining the cost of borrowing money. In a healthy market
economy, more savings equals lower interest rates. When savings rates
are low, capital dries up and the cost of borrowing increases.
However, when the Fed sets interest rates artificially low, the cost of
borrowing becomes cheap. Individuals incur greater amounts of debt,
while businesses overextend themselves and grow without real gains in
productivity. The bubble bursts quickly once the credit dries up and
the bills cannot be paid.
Second, the Fed steadily increased the monetary supply throughout the
1990s by printing money. Recent Fed numbers show double-digit annual
increases in the M2 money supply. These new dollars may make Americans
feel richer, but the net result of monetary inflation has to be the
devaluation of savings and purchasing power.
The precipitous drop in the dollar shows how investors around the globe
are very concerned about American deficits and debt. When government
policies in a fiat system are the sole measure of a currency’s worth,
the currency markets act as a reliable barometer of how those policies
are viewed around the world. Politicians often manage to fool voters
and the media, but they rarely fool the financial markets over time.
When investors lack faith in the U.S. dollar, they really lack faith in
the economic policies of the U.S. government.
*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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