I have written in the past, Why is the cost of my Bill of Material (BOM) so much higher than last week? The Orwellian doublespeak answer: Quantitative Easing, about how the government is manipulating the money supply, and how it has real world effects on our designs. Dollar Stretcher Guest Blogger Rick Kahler has written about how the government is now inflating the money supply, as my past columns predicted they would, by manipulating how the Consumer Price Index (CPI) is calculated. They have manipulated this number many times in the past such as by adding in the Military Personnel, removing real world items like food, gas and fuel. So do check out Rick's The Ultimate Stealth Tax: Inflation. Also you can get real inflation numbers (1980 and 1990 based) from John Williams ShadowfStats.
"...The chained CPI is a tax increase for much the same reason. Many income tax brackets and deductions are indexed to inflation. Smaller annual adjustments to the brackets because of the lower CPI will push more people into higher tax brackets..."
One of the significant causes, of which there were many, of the Great Depression was when the Federal Reserve contracted the money supply. Even Warren Buffett has stated that he is concerned what will happen once the Federal Reserve Bank starts selling its holdings. Interestingly Governor Ben S. Bernanke has commented on this in the past: Money, Gold, and the Great Depression -- Remarks by Governor Ben S. Bernanke, At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia, March 2,2004.
Many are saying that we should return to the Gold Standard. That is each 'dollar' is exchangeable for real tangible gold, in theory. Places like the World Gold Council are, of course, all for this. Many banks are already starting to dump US Dollars to stock up on Gold. Hence the same people that are creating the mess we are about to face will be the same people controlling the Gold. Do you see this as an improvement? I do not.
"Central banks have begun to reduce reserve portfolio allocations to US dollars and euros in favor of alternative reserve assets. A portfolio optimization analysis concludes that gold, with its lack of credit risk and deep and liquid market, is one of the most attractive alternatives in this diversification process. Accordingly, building gold reserves in tandem with new alternatives is an optimal strategy as these markets need time to develop and allocations to gold remain largely below optimal levels." -- Central bank diversification strategies: Rebalancing from the dollar and euro. [Registration is required to download the report.]
My past ramblings on the issue of 'Money' and Inflation:
- Is the Dollar Dead? Bank of England says so.
- "We can always print money" - Alan Greenspan on Meet The Press Aug/07/2011
- Why is the cost of my Bill of Material (BOM) so much higher than last week? The Orwellian doublespeak answer: Quantitative Easing
Even the main stream press is catching up to what I was talking about in 2010:
- Central banks souring on the dollar.
- Buffett is worried about Fed policy.
- Markets on edge as Fed officials differ on bond-buying.
- Economic forecasts no better than a random walk.
- Global economy facing hesitant and uneven recovery, says OECD [Organization for Economic Co-operation and Development].
- Introduction to inflation by Rick Kahler.
The Treasury sells bounds, sheets of paper with no intrinsic value, to the Federal Reserve for things that politicians do not have the honesty to come out and say directly that they need to raise our taxes to support. The Fed buys these bonds with 'money' that it created from nothing. This created 'money' is put into circulation, making your money worth less each time it happens. This inflation is the most insidious hidden tax that you and I pay. Few figure this system out because it is usually hidden behind the Orwellian doublespeak of economics such as Quantitative Easing.
Will you be ready for the Greater Depression?