How the Fed Steals for the 1%

The Occupiers mistakenly blame capitalism, but it is not capitalism that is behind this inequity. It is the completely anti-capitalist Federal Reserve System.
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It is ironic that Occupy Wall Street is reportedly very low on cash. This is something that Wall Street itself never has to worry about. They have ready access at all times to as much cash as they need. The Occupiers mistakenly blame capitalism, but it is not capitalism that is behind this inequity. It is the completely anti-capitalist Federal Reserve System.

The Fed purports to stimulate economic growth by expanding the volume of money and credit. This forces down interest rates and makes more money available to start new businesses or expand existing ones. However, while the currency units are created out of thin air, the purchasing power is not. The purchasing power has to come from somewhere.

As I've explained before, the expansion of money and credit really redistributes wealth from the holders of existing currency units to whoever receives the new money. When an individual "redistributes wealth" without the consent of its current owner, most people call it "stealing." Now, the Occupy movement may not have a problem with that if it results in less disparity between rich and poor. However, that's not what the Federal Reserve System is all about. The Fed steals for the 1%.

Everyone knows that the new money and credit created by the Fed flows to Wall Street. That's where big loans are made and new ventures are launched. While the borrowers do have to pay the loans back, they do so out of profits made from new capital they have acquired. The Fed silently steals this capital from everyone and transfers it to Wall Street.

This transfer is accomplished through the phenomenon of steadily increasing prices. That is the cost of creating new money. The cost is born by the 99% while the 1% keeps all of the profits.

If the amount of currency is increased and the amount of available goods and services remain the same, prices are going to rise. You don't have to take my word for it. Sometimes a spreadsheet is worth a thousand words.

This spreadsheet from the Fed's own website tracks the "inflation rate" from 1800-2008. The last column (added) tracks the price movements of a basket of goods and services that cost $100.00 in 1800. As you can see, prices dropped dramatically over time throughout the 19th century. That same basket of goods that cost $100.00 in 1800 cost only $56.74 in 1912.

It is important to understand the implications of this phenomenon for 19th century workers. It made them richer. Someone making $200.00 per year in 1912 was twice as wealthy as someone making $200.00 per year in 1800. While wages increased less in the 19th century than in the 20th, purchasing power for the average worker rose dramatically. This is the natural result of society becoming more productive. As the supply of goods goes up, all things being equal, the price of goods goes down.

Contrary to Ben Bernanke's warnings of the horrors of "deflation," falling prices were the norm throughout the period in American history when the economy and the middle class expanded most dramatically. Yes, great fortunes were made by a few, but they had to be made honestly when money was honest. Most importantly, the common worker became wealthier during this period. He didn't have to risk his savings in the stock market just to keep up with inflation. He could simply save cash and watch his purchasing power increase over time, instead of vanish.

Now, look at the same basket of goods from 1913 (the year the Fed was created) through 2008. You see exactly the opposite trend. The same basket of goods that cost $56.74 in 1912 now costs $1,265.14. Obviously, even the more dramatic increase in wages during this period has not kept up with the increase in prices. This makes the average worker poorer.

The Fed is the reason that average Americans have worked harder and become more productive over the past century yet have not experienced a corresponding increase in wealth. It is why two people in the average family have to hold jobs just to provide the lifestyle formerly provided by one. The Fed is behind the widening gap between rich and poor.

People from different ends of the political spectrum will never agree on everything. However, they can work together on those things that they do agree on, such as stopping a war or abolishing bad laws. If the Occupiers turn their attention to the Federal Reserve System, they will be surprised at the people they will find standing by their side. Libertarians, independents, and even a Republican presidential candidate will join them on this. Let's get rid of 99% of the problem now and argue about the other 1% later. Occupy the Fed.

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