U.S. Federal Reserve: 100 Years of Destroying the Purchase Power of Money?
Politics / US Federal Reserve Bank Dec 16, 2013 - 02:12 PM GMT
Michael Lombardi writes:
Nearly 100 years ago, on December 23, 1913, the Federal Reserve was created. The central bank was created for many reasons, such as minimizing the impacts of panics, becoming a banker of last resort and “smoothing” economic cycles.
But along the way to keeping the monetary system stable, something happened: the value of money deteriorated.
What you could buy for $1.00 in 1913 costs $23.59 today. (Source: Bureau of Labor Statistics web site, last accessed December 11, 2013.) A simple calculation would show that prices have increased by 2,259% over the last 100 years.
Something else to ponder: there have been more erratic movements in inflation since the Federal Reserve was created than in the century prior to then, when the Fed didn’t exist! Since the Federal Reserve was born in 1913, there were 10 years when inflation in the U.S. economy came in at more than 10%. Between 1800 and 1912, there were only four years when inflation in the U.S. was greater than 10%. (Source: Federal Reserve Bank of Minneapolis web site, last accessed December 11, 2013.)
“What’s your point, Michael?”
The unprecedented amount of paper money the Fed has created (out of thin air) since the Credit Crisis of 2008 will come back to haunt us—that’s my fear.
The Federal Reserve’s balance sheet has grown to about $4.0 trillion. M2 money stock, that’s the supply of paper money in the U.S. economy, has gone up 27% since 2009. (Source: Federal Reserve Bank of St. Louis web site, last accessed December 11, 2013.)
And through its “quantitative easing” program, the Federal Reserve continues to print $85.0 billion per month in new paper money with no end in sight. On top of this, it’s kept interest rates artificially low for years.
All this “printing” will eventually devalue the U.S. dollar and further destroy the buying power of Americans. Our lesson in history has been that the more dollars in circulation, the less those dollars buy. Sure, the official numbers don’t show there’s a problem with inflation (yet), but ask the average American Joe, and he won’t tell you his cost of living is going down.
We are living in unprecedented times. We’ve never had a situation in which the Federal Reserve printed so much new money. Many people are unfazed by this because it doesn’t really make a difference in their everyday life…right now.
But two serious risks have developed: 1) the stock market has become so dependent on the “easy money” policies that prevail today, that should the money printing stop or be significantly tapered, the market could crash; 2) inflation is “chomping at the bit.” Yes, I understand the “official” figures don’t show it, but by the time they do, it will be too late. The damage will already be done.
Bottom line: be very cautious about the stock market and prepare for some serious inflation.
This article Federal Reserve: 100 Years of Destroying the Purchase Power of Money? is originally publish at Profitconfidential
Michael Lombardi, MBA for Profit Confidential
http://www.profitconfidential.com
We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.
With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!
© 2013 Copyright Profit Confidential - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
