The Federal Reserve Bank and why it must go.

One of the things that has been interesting to me in recent months is the Federal Reserve Bank. I won’t go into too much detail about its shady creation, but I will provide a couple of interesting tidbits, in layman’s terms.

1. The Federal Reserve Bank creates money out of nothing. When they increase the money supply, they create money out of thin air (only a small fraction is minted as coins and bills). When more money exists, then each dollar is worth less. That is just basic supply and demand. The people and entities that benefit most are the ones that get the newly-created money first: the U.S. government and the banks. They spend it when it is still worth something, before inflation reduces the value of the money over time. By the time that Joe Average gets an annual pay raise, it barely keeps pace with inflation. For wage workers, minimum wage is way behind.

2. The ability to create money out of thin air dissuades diplomacy and encourages wars. If you have to fund a war without being able to create money out of thin air, people tend to care a lot more.

3. For the same reason, spending on special interest programs is not kept in check as taxes are not raised proportionately. Most of the money spent by our government really does not exist. Which again, creates inflation and devalues the dollar. The dollar is worth $0.05 of what it was in 1914 since the inception of the FRB. If dollars were still backed by gold (and therefore could not be created out of thin air,) the dollar would still be worth $1.00.

Why does this matter? Constant inflation of the dollar decreases its value compared to other currencies and versus other investments, such as gold (which costs $1200/ounce now (compared to $35 in 1968 and $868 in 2008), not because the value of gold has gone up, but that the value of the dollar has gone down) to the point that it has no inherent value to other countries. At that point, our country is in big trouble.