Crack-Up

The Fed

We know that the Federal Reserve is little more than an inflation machine. Since its inception in 1913, the value of the dollar has fallen by about 96%. The biggest part of this decline (80% points) has been since 1971 when the US (and the whole world) went on a fiat money standard.

Since 1971 there has been nothing behind any currency in the world other than a useless governmental promise.

Ben Bernanke is on record stating that he will rev up the helicopters to drop money rather than experience deflation as a result of the current crisis. As Fed chairman, that statement strikes me as a bit redundant. That is the only thing the Fed does well.

Given the Fed’s history and Bernanke’s stated intentions, why would anyone not believe we are in for an inflationary nightmare? If one does not come, it will not be for lack of trying. That does not guarantee that it will happen, but it is probably a safer bet than betting on deflation.

The effects of inflation go beyond statistics. They affect human beings in very harsh ways.  For those who want to get a picture of what high inflation means, I encourage you to read Crack-up.  The indicators, as pointed out in the piece, seem to be overwhelming in terms of the US.

And this is not to say that in the west we have reached the point of no return. Though the message from Professors Rogoff and Reinhart („This Time is Different: Eight Centuries of Financial Folly‟) is hardly encouraging. R&R indicate that the tipping point for a country is when external debts surpass 73% of GDP, or 239% of exports. Beyond that level, the outcome is default or hyperinflation, or conceivably both. The US, by way of example, currently has external debts at 96% of GDP …

To understand the human side of inflation, look at Crack-up by Tim Price. It is only about 3 pages.

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