The Fed's easy money policies have incentivized debt over thrift

“We continue to refuse to live within our means”
October 3, 2017

Back on May 15 the Cape Gazette ran an interesting article by investment advisor Robert S. Jeter II about "investment's silent killer: inflation" that he rightfully called the "carbon monoxide to your retirement plan."

He defined inflation as, "a general increase in prices and fall in the purchasing value of money."

He also noted that people could usually keep up with inflation through increasing wages, although it's hard to make that case in Delaware where the percentage of change in median household income from 2000-15 was -16.7 percent, ranking 49th among states (U.S. = -2.2 percent).

Missing from his analysis, though, was any mention of the cause of inflation and decreasing purchasing power. For that we can look to investor and author Doug Casey, who disagrees that inflation is "a general increase in prices." He thinks, "To say that is to confuse cause and effect. Inflation is an increase in the money supply. You inflate when the money supply is increased by more than real wealth increases. Prices go up as a result ... Nobody ever thinks it's a central bank - the Fed in the U.S. - that actually creates more money, and causes inflation."

He adds, "You've heard that central banks ... say, 'A little bit of inflation is good.' No, even a little bit of inflation is deadly poisonous. For two reasons: It creates the business cycle (booms and busts). And it destroys the value of savings. Saving is the basis of capital creation."

So, why then would the Fed set a goal of 2 percent inflation per year since 2012, which means in 10 years our savings will be worth 20 percent less, especially since they've already destroyed any normal return on savings?

It seems the plan is, as they continue to inflate dollars and decrease purchasing value, we'll spend dollars faster before they lose more value and spur the economy. They want us to borrow and spend, not save.

With that comes the incentive to invest in stocks that Mr. Jeter says, "have provided the best inflation-adjusted returns and provided investors with growth above inflation...(but) come with the market risk of equity-like volatility" and bubbles. Witness 2000 and 2008.

For an historical look back, Euro Capital's CEO Peter Schiff has written, "For the first 120 years of the existence of the United States (before...the Federal Reserve), general prices trended downward. According to the Department of Commerce's Statistical Abstract of the United States, the General Price Index declined by 19 percent from 1801 to 1900. This stands in contrast to the 2,280 percent increase of the Consumer Price Index between 1913 and 2013."

He continues, "While the 19th century had plenty of well-documented ups and downs, people tend to forget that the country experienced tremendous economic growth during that time.

Living standards for the average American at the end of the century were leaps and bounds higher than they were at the beginning .... But all this happened against a backdrop of consistently falling prices."

The sound-money gold standard, in effect then, acted as a brake against inflationary money creation and bloated government spending, unlike today.

To illustrate, in 1913 at the Fed's birth, a $20 bill and a $20 gold piece (an ounce) were equal. But today an ounce of gold is worth $1,306 (9-19-17), and that $20 bill is worth $.80 in purchasing power (Bureau of Labor Statistics inflation calculator).

So much for the Fed's mandate to assure "stable prices."

Government control of the price of money (interest) through the secretive Fed rather than a natural rate determined by borrowers and lenders is, in effect, monetary socialism undermining our economic liberty.

It distorts free-market price discovery of products and services (eg. housing, food, education, etc.) by picking winners and losers. Borrowers win, savers lose while favored groups receive subsidies.

This has happened in spite of the fact that Congress had no constitutional authority to establish a central bank.

The Fed's easy money policies have incentivized debt over thrift to the tune of $12.73 trillion in household debt (Barron's 1st Qtr. 2017) surpassing $12.68 trillion at top of housing bubble. Meanwhile, savers have lost an estimated $10.8 trillion in savings interest since 2001 in the Fed's zero interest rate era (Tyler Durden, Zerohedge 7-17-13).

It seems that we have turned into a nation of debt-serfs following our monetary master's (Fed) lead as we stand on a (fiscal) cliff overlooking a $543 billion federal deficit (2016), $20 trillion of total federal debt and more than $100 trillion in unfunded liabilities that our politicians have amassed.

As we continue to refuse to live within our means, the resulting inflation is a continual hidden tax on our wealth.

It's an untenable situation.

Geary Foertsch lives in Rehoboth and writes from a libertarian perspective to promote economic liberty, non-cronyism free markets, small government and a non-intervention foreign policy. He can be contacted at


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