OBAMA AND BERNANKE’S GIANT THREE-STEP INFLATION SCAM

Obama and the Democrats, with the help of Fed Chairman Bernanke, have a plan which will grow Big Government and cripple private business.  INFLATION will be the battleground. The plan is devilishly simple and can be summarized in three simple steps:

Step One: Fuel inflation with federal stimulus spending, which grows government. It gains control over big business; witness the banking and auto industries. It rewards big labor; witness its ownership of General Motors.

Step Two: Fight inflation by choking off the availability of credit in the private credit markets, which happens to punish small business, not one of their constituencies.

Step Three: To the extent the economy recovers, claim that federal stimulus did it. If the economy doesn’t recover, use that as an excuse for even further government expansion.

For an explanation of how the Fed will fight inflation by choking off credit to the private sector we need to go no further than Mr. Bernanke’s own piece in the Wall Street Journal of July 21st.  Of course we first need to translate it into plain English. Bernanke writes that “at some point…we will need to tighten monetary policy to prevent the emergence of an inflation problem.”  Then he describes the methods the Fed will use to tighten monetary policy, all of which directly suck the oxygen, i.e. credit, out of the private markets.

First, Mr. Bernanke notes that the Fed has authority to pay interest on balances held by commercial banks at the Fed.  Then he blandly observes that when the Fed decides to pay higher interest on these deposits that “banks will not lend funds in the money market at an interest rate less than it can earn risk free at the Fed."  Of course Mr. Bernanke is correct.  The Fed can certainly successfully compete with the individual or small business for funds.  But what a disconcerting image, the federal government outbidding it’s own citizens for needed financing.

The next mechanism described by Bernanke is the “sale by the Fed of securities from its portfolio with an agreement to buy the security back at a slightly higher rate at a later date.”  In other words, the Fed will use its privileged status to soak up funds otherwise available to the private markets by influencing or pressuring banks to turn over funds to the Fed in exchange for a favorable buy-back agreement; something no private entity can match.

Additionally Mr. Bernanke writes that the Fed can “sell bills”, “offer term deposits to banks” and sell “a portion of its holdings of long-term securities into the open market”, all of which would presumably be done at rates with which private markets cannot compete. Talk about a Giant Sucking Sound.  It’s the sound of money, otherwise available to small business, being sucked up by the Fed, in effect to pay for a stimulus package and pork barrel projects; both of which increase government control of megabanks, auto manufacturers and big labor unions. Of course, Mr. Bernanke doesn’t admit that the stimulus package is inflationary, saying instead that The Fed policies will be initiated when the economy recovers.

Why is Bernanke favoring us at this particular time with a description of how he intends to kick the hell out of the private sector to fight “an inflation problem”? The answer can only be that he is conscious that the Republicans and conservative Democrats are pointing out the dangers of inflation caused by the $814 billion stimulus package.

And why are Republicans and conservative Democrats so aware of the dangers of inflation? The answer, in the humble opinion of the writer, is the existence of two ground-breaking earth-shattering books. The Creature from Jekyll Island , is one which has changed the way many people look at money, the story of the Fed disguised as a page-turning thriller, written by E. Edward Griffin. The other book is Meltdown by Thomas E. Woods. Both books describe how the Fed, in its uncontrolled discretion, has manipulated the money supply to keep inflation in the economy.  The rate of inflation which the Fed has targeted is 3% annually, according to the consensus of economists, which coincides with the actual Consumer Price Index change for the past 20 years. This steady drip, drip, drip of seemingly modest inflation in the 20 year period amounts to a cumulative increase in the CPI of 75% over the 20 year period.  The inflation in prices is the effect of the Fed inflating the money supply, or liquidity. This is accomplished by the Fed selling Treasury bonds to finance government spending, or by expanding or taking away money from the private sector through interest rates and other controls. It is the general thesis of the Creature and Meltdown books that the excess liquidity injected into the system by the Fed to maintain a 3% annual inflation rate increases the money supply so drastically over a period of years that speculation into uneconomic projects occurs as for example in sub-prime mortgages, excess housing inventory, oil price speculation and the like, making a recession inevitable sooner or later.

If you hear members of Congress or television financial commentators talking about the dangers of inflation related to the Fed’s policies or Obama’s stimulus package, the odds are they’ve read the books! So should you! If you want to be informed as to the real causes of inflation and recession these two books will be a great place to start. The thesis referred to above is substantially the same as that studied and advanced by the Austrian school of economics, so named for the Austrian economist Ludwig Von Mises.

Of course we must assume that Benrnanke and his minions have also read the books. They are aware of public scrutiny and public awareness of the dangers of inflation as never before. Listen to Bernanke’s comments and see if you don’t hear his defensive position spelled out by saying in effect:  “Don’t worry about inflation from the stimulus package, we’ll take care of that by starving out the private sector.”  That’s the inflation scam!  Ron Paul is right when he says:  “Audit the Fed.”

We believe that INFLATION to pay for federal spending will be the battleground issue of the decade. 

Donald A. Pleasants
Editor