What Can’t Happen Here is Already Happening HereWritten by Gary Rathbun | | GaryRathbun@PrivateWealthConsultants.com
Last time I took a look at the banking issues in Cyprus and did some speculation about it happening here like it was happening there. My conclusion was that I thought it would be very unlikely that a troubled bank here would confiscate the money that the depositors had in their accounts to bail itself out.
While I still hold that view, I did want to talk about how the Federal Reserve is confiscating our money in a very stealthy way. Their technique is to simply increase the money supply, what we know as inflation. Instead of the Federal Reserve confiscating your dollars from your account it is simply making those dollars worth less so your buying power is less.
So far, we have not had much declared inflation since most of the money that has been printed has not made it in circulation yet. Instead it has stayed on the Fed’s balance sheet. The time is coming when the Fed will decide to reduce its balance sheet and then we will see a much higher percentage of inflation than now. When will that happen? Who knows! I don’t think it will happen before the 2014 elections and it may be much further down the road than that. I am confident, however, that it will happen and it will be significant.
The methodology of calculating the Consumer Price Index (CPI), the Core CPI, (excluding food and energy), unemployment, GDP, the national debt and government spending, is designed to lead us to certain conclusions that the government wants us to draw. Unemployment is getting better, inflation is under 2 percent and interest rates are low and helping the economy to heal.
Unemployment is getting better because more and more people are no longer counted as part of the workforce. When people’s unemployment runs out they are no longer counted. Many are filing for disability under Social Security where statistics tell us they will remain for the rest of their lives.
Inflation being declared under 2 percent is also skewed, in the sense that it uses products and services that don’t give a true representation of everyone’s ordinary life. For example: leaving out food and energy. Any of us who eat, drive or heat our homes know that the cost is going up significantly on a regular basis. Not to mention that the Fed does not take into consideration the quantity of goods sold at the same price in determining the index. (I am waiting for the day when a ‘loaf’ of bread is 2 slices and a ‘gallon’ of milk is 3 quarts.)
Office rents are used in determining the CPI and if you look around any city in this country you can see enough vacant space to know that rents should be lower just from the availability of square feet.
Interest rates are being kept low to supposedly try and stimulate the economy when one of the main reasons is to keep the interest on the national debt manageable. The Fed is buying up most of the debt and helping fool the market into thinking there is a greater demand for government debt than there really is.
With interest rates so low, the Fed essentially is trying to pay people to borrow money so they can spend it on consumables and thereby stimulate the economy. The problem is that people are not buying it, so to speak, and the economy remains sluggish. But they keep trying.
It is the game that the Fed wants us to play so that the real benefactors of the Fed’s actions can remain quiet and rake in the money. I will let you guess who that is.
Over the next several weeks I will be presenting an in-depth series on the workings and structure of the Federal Reserve on Eye on Your Money. I look forward to your comments and questions.
Gary L. Rathbun is the president and CEO of Private Wealth Consultants, LTD. He can be heard every day on 1370 WSPD at 4:06 on After the Bell, everyday on the Afternoon Drive, and every Tuesday, Wednesday and Thursday evening at 6 p.m. throughout Northern Ohio on Eye on Your Money. He can be reached at (419) 842-0334 or email him at email@example.com