Since the Federal Reserve is private...?

Question

Since the Federal Reserve is private and the US dollar is not based on gold. Then isn't the devaluing of the dollar from inflation caused by wreckless printing and lending also a form of taxation? (if not robbery)

Something fathomable when, under the guise of a Federal Department, they are truely a phantom corporation...with just as much accountablility. So, on one end: the middle class labors away for this paper that really only goes down in value and their wages are based on minimum wages which only go up incrimentally (2-5 years) cause if they don't stagflation is inevitable...and on the other end: The Fed Reserve lends the money and prints it, which acquires more assets for them and simultaneously less wealth for consumers who own dollars because there's more of them. How is this not exploiting the labor of Americans?

Answer 1

No, not at all.  Let me give you an example.  Suppose you make $50K per year.  A creditor would probably offer you a substantial amount of credit.  But now suppose you already owe $500K to other creditors.  You would probably be declined.  It is the same thing on a macroeconomic scale.  The U.S. is over extended and entering a recession.  We are not considered reliable enough to pay back debt and therefore the US dollar is less valuable.

Answer 2

Exactly.  Every time the government reduces the interest rate it encourages borrowing and more dollars are in supply increasing the cost of oil, gold, etc.

Answer 3

I can tell from your question that you do not know that much about printing money and Banking.  Money is printed, but is not issued until the Federal Reserve needs to increase the Money Supply.  Our Money system is called a Fiat System, which means that the money is worth something because the government says it is.  The other type of money system, where money is backed by something, such as gold, is called commodity.  So, no, our money value is going down due to the deflation of the economy and current recession.  Bush passed the Stimulas bill so that you will spend the money to inflate the economy and cause high prices to go back down.

Answer 4

They are exploiting our labor, in more ways than one.  

The way you mentioned, inflation is a tax on the middle class because the creators of the money... and the big businesses that borrow most of it, get the money fresh off the presses, before it's devalued.  The end user, the consumer, ends up paying higher prices as a result.

Plus, with a fiat money system, inflation over a long period of time is guartanteed.  That's why a dollar today will buy you what 0.04 cents would by you in the early 1900's.  This long term inflation taxes the middle class because we're the ones trying to save for retirement.  As you're saving money, it's value is slowly decreasing.  So if you save $100,000 over the next 20 years, it's likely to only be worth $30,000 by the time you get to the end of the 20 years.

An once of gold in 1900 would buy you a decent suit, a nice pair of boots, a hand-crafted leather belt and leave you with enough change to take your wife out for a nice dinner.

An ounce of gold in the year 2008 will buy you a decent suit, a nice pair of shoes, a hand-crafted leather belt and leave you with enough change to take your wife out for a nice dinner.

The only difference is... how many paper dollars did that once of gold cost you?

I'll let Ron Paul explain it to ya...

All government spending represents a tax. The inflation tax, while largely ignored, hurts middle-class and low-income Americans the most. Simply put, printing money to pay for federal spending dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real – the individuals who suffer most from cost of living increases certainly pay a “tax.”

Unfortunately no one in Washington, especially those who defend the poor and the middle class, cares about this subject. Instead, all we hear is that tax cuts for the rich are the source of every economic ill in the country. Anyone truly concerned about the middle class suffering from falling real wages, under-employment, a rising cost of living, and a decreasing standard of living should pay a lot more attention to monetary policy. Federal spending, deficits, and Federal Reserve mischief hurt the poor while transferring wealth to the already rich. This is the real problem, and raising taxes on those who produce wealth will only make conditions worse.

Borrowing money to cut the deficit is only marginally better than raising taxes. It may delay the pain for a while, but the cost of government eventually must be paid. Federal borrowing means the cost of interest is added, shifting the burden to a different group than those who benefited and possibly even to another generation. Eventually borrowing is always paid for through taxation.

The third option is for the Federal Reserve to create credit to pay the bills Congress runs up. Nobody objects, and most Members hope that deficits don’t really matter if the Fed accommodates Congress by creating more money. Besides, interest payments to the Fed are lower than they would be if funds were borrowed from the public, and payments can be delayed indefinitely merely by creating more credit out of thin air to buy U.S. treasuries. No need to soak the rich. A good deal, it seems, for everyone. But is it?

The “tax” is paid when prices rise as the result of a depreciating dollar. Savers and those living on fixed or low incomes are hardest hit as the cost of living rises. Low- and middle-incomes families suffer the most as they struggle to make ends meet while wealth is literally transferred from the middle class to the wealthy. Government officials stick to their claim that no significant inflation exists, even as certain necessary costs are skyrocketing and incomes are stagnating.

The transfer of wealth comes as savers and fixed-income families lose purchasing power, large banks benefit, and corporations receive plush contracts from the government – as is the case with military contractors. These companies use the newly printed money before it circulates, while the middle class is forced to accept it at face value later on. This becomes a huge hidden tax on the middle class, many of whom never object to government spending in hopes that the political promises will be fulfilled and they will receive some of the goodies. But surprise – it doesn’t happen. The result instead is higher prices for prescription drugs, energy, and other necessities. The freebies never come.

The moral of the story is that spending is always a tax. The inflation tax, though hidden, only makes things worse. Taxing, borrowing, and inflating to satisfy wealth transfers from the middle class to the rich in an effort to pay for profligate government spending, can never make a nation wealthier. But it certainly can make it poorer.

July 18, 2006