Wednesday, May 23, 2007

Money and Stability

Gold bug Howard Katz, author of the Paper Aristocracy and The Warmongers, has started a new blog called thegoldbug---the one-handed economist at http://www.thegoldbug.net/blog.

Howard Katz's first blog concerns how the foundation of the Federal Reserve Bank in 1913 has resulted in inflation, so that today prices are 16 times higher than they were in 1933. The source of this effect is the Fed's creation of credit. In his blog, Katz points points out that

If the Government tried to borrow from the people, its borrowing would crowd out most other projects, and a great deal of business would come to a standstill. For this reason, the government “borrows” from itself. That is, the Federal Reserve (a part of the government) creates money (using the power given it in the Banking Bill of 1933) and “lends” this money to the Government proper. In effect...it simply counterfeits enough money to balance its budget. This is why prices have risen in this country for every year since 1935
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Howard Katz points out that due to inflation, social security is a terrible investment. If you invested 15 percent of your pay each year into stocks, bonds and hard assets like commodities, you would have many times what social security has to offer. Part of the reason is the very inflation that Katz attributes to Fed policy. Sadly, the same "something for nothing" mentality that drives public support for social security also drives banking support for the Fed.

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