The Federal Reserve has been creating bank notes backed by nothing of real value since 1971. This allows the government to fund expensive projects like wars without actually having the tax revenues to cover it. Recently, the Federal Reserve has not only been pumping out paper to cover the wars but also printed trillions to cover the bank bailouts. This large influx of money into the system will cause the value of the dollar to drop drastically.
Inflation occurs when the value of the dollar declines. This is often compared to the price of gold which tends to rise in times of inflation even though there is no longer a symbiotic relationship between gold and the Dollar. Since 1971, the price of gold has risen from $34 a troy ounce to over $1000 in 2008. During the same time, the Dollar has lost 97% of its value. So, in reality, the U.S. has been in a period of inflation for the past 38 years. The Federal Reserve , the creator of our reserve currency, is by definition inflationary. Its recent actions are only going to increase that inflation exponentially.
There are some who claim that the resulting stagnation caused by the growing unemployment in the private sector will ward off the hyper-inflation predicted by others. But, because of the global use of the Dollar in international trade, the actions of the rest of the world also have a stake in this. Throughout the 1990s the imports of the U.S. far outweighed the exports. Because of the decline of the value of the Dollar, it is possible that those countries the U.S. imports from will no longer accept the Dollar. The difference in exchange rate between the Dollar and the Euro or Yen will cause the price of imports to rise while the value of the Dollar drops even further.
The Federal Reserve has purposely created inflationary bubbles many times before. By manipulating monetary policies and interest rates, the Federal Reserve attempts to stop the bursting of natural economic bubbles by creating others. This only creates bigger and bigger bubbles as time goes on. By the time of the Housing Bubble, the banks had become so used to not being held accountable for their bad investment decisions that it led to the insolvency of the banks themselves. And, once this happened, the Federal Reserve turned on the printing presses again. This may keep the banks open but it will destroy the value of the Dollar and, in effect, the livelihoods of millions of Americans.
Creating new bubbles to prevent the bursting of old bubbles is not good monetary policy. It cannot be sustained indefinitely. And, because the Federal Reserve has been doing this since 1913, this could very well be the worst inflationary bubble that it has ever created. It could also be its last. Eliot Spitzer has called the Federal Reserve a “Ponzi scheme, an inside job” and is completely in favor of the House bill to audit the Fed. This bill could be the first step to the eventual elimination of the Federal Reserve as the central bank of the U.S.
The restructuring of the monetary policy of the U.S. in today’s political environment is not going to be easy. But it will be necessary when the coming inflationary bubble grows to unmanageable proportions. It can be prevented if the Congress just takes their constitutional responsibility and creates a viable Dollar through a progressive Independent Treasury system. All that will take is to educate the American public on the problems of allowing a private banking cartel to control the U.S. economy, and the benefits of having the Treasury take the role it was created for. It will also take a Congress and President who has the guts to stand up to the very powerful bankers. Politicians need to understand that if the problem is not tackled in the very near future the bursting of the coming inflationary bubble will be devastating to us all.