The Fed, The Crisis, Inflation and Obama

Admittedly, I am not an expert on Economics. However, I do follow the logic of Ron Paul, which is to say, ‘How does the fed have the right to make money out of thin air?’ First, let us examine the issue of the fed and its questionable legality. In our system of government, there are supposedly three branches of government, this process as we know from simplistic civics classes is to provide a system of checks and balances. However, it seems the power of the fed would indicate there is a fourth branch of government, a pseudo branch. It is like an appendix that has a purpose. It is argued, and I have heard this argument prior to college while in high school, that the fed at times has more power than the president does. More power than the president!! (Yes two exclamation points for emphasis). This should not be an issue from a constitutional standpoint. How can an unconstitutionally mandated organization, which we do not even know is privately owned or owned by the government, exercise is such a fashion that is so powerful. It affects are lives in every single fashion simply because, we need money. Money is provided by the fed. But, where does the fed get money?

Since the creation of the Fed in 1913, suspiciously passed in congress two days before Christmas when other politicians were home to be with family, inflation has increased exponentially to the years in existence.  

Inflation is tied to the strength of the dollar, and the dollar has lost 96% of its purchasing power since the fed was created. The Fed’s purpose was to ensure that a banking failure like that seen in 1907 would never happen again. Of course, the great depression happened in 1929, so the purpose of the fed and its preventative tactics should have been called into question then.

Does today’s crisis relate to the fed? This question is an ongoing debate. Here is how I see it in the most simplistic terms. The fed creates money, because it has a divine power to create where there is none; I cannot fathom the thought process, so I will digress from this point. When the fed creates these monies, it lends it to the banks (at interest), so the banks can lend it to us (at interest). Let us say the fed creates 100 dollars, then loans it to a bank at 4% interest, then that bank loans it to someone and charges 6% percent interest, the fed will get 104 dollars from the deal, the private bank will get 102 because it had to pay the fed back the 4%. But wait, the fed only created 100 dollars, how will the interest be paid? Obviously the fed has to create more money. Does this make sense? No of course, it does not make sense.

 If you repeat the process several millions times and loan out money to people in mortgage backed securities, eventually money will run out. This is the credit crisis in essence; credit is frozen because money ran out.

The fed’s only option is to increase the money supply, AKA inflation. Increasing the money supply takes time and the crisis has already extended to the people, and the people are struggling with existing mortgages. The epidemic exacerbates further as people run out of money because they are laid off from their jobs, because businesses that operate on credit can’t get money to pay them. This in turn causes people to save, which causes business to lay off people because they aren’t selling; and the process continues. The fed’s plan will eventually work and here is the reason why:

The fed pumps money in, inflation will rise. Inflation is necessary to keep the cycle going and beneficial when buying things on the basis of credit. As inflation rises, prices for goods will rise. So those who have a mortgage on a house for let us say, 100 dollars (to simplify the thought process), and are lucky enough to survive the massive layoffs will now have an easier time paying for the mortgage. Because once everything is realigned and credit markets start pumping again, and inflations rises (and it will because it is necessary in this system) then the person who bought the house for 100 dollars, will theoretically have more access to money to pay off the mortgage. The other benefit is that the property value, which the mortgage is based off, used to be 100 dollars, but will now be 125 dollars because of inflation! The person who can survive this crisis will be much better off than the person who was foreclosed on, because based on credit he has made money. When we buy things based on credit, inflation will make the item bought cheaper in the future, depending of course on the interest rate.

I question those who called Obama a socialist looking to spread the wealth and not because I am fan of him. Obama was elected for many reasons, one being because he will close the gap on the economic disparities; this is where the theory ‘he wants to spread the wealth, he is a socialist,’ originates. However, his policies thus far are counter indicative to the agenda of closing the economic disparities, or being a socialist. He is more of the same, because he is supporting the same system that has been in place for 80 years causing the disparities. If he were truly an admirer of President Lincoln, he would abolish the Fed and create the “Greenback” again. Abolishing the fed would eliminate social disparities, or at the least give those of us a chance to regain our footing which we lost in the rat race. If he really cared for the black caucus this would give them a chance to finally make money without the constant threat of inflation. Obama is not a socialist, I repeat he is not a socialist, he is simply another corrupt politician, because we must take into account the natural inclinations of human nature when confronted with power, and its ability to corrupt.

He has continually rebuked those who question his plan. He has said, “Offer a counter proposal if you don’t like the plan.” We have, now get your head out of the gutter and listen to us! Abolish the Fed!