More Dollars, Less Wealth

Shawn Ritenour,

Defenders of the Federal Reserve have been out in force recently declaring the triumph of Money Printing 2, James Grant’s suggested more truthful term for “quantitative easing.” Some pundits point to an 18-percent increase in the S&P 500 since last August, when the Fed’s policy was announced. They also laud a significant increase in inflation expectations. Nominal GDP is on the rise again and official unemployment is lower. All of these are seen as positive economic signs, indicating that Fed policy is working. Don’t believe it.

Behind the talk is the notion that monetary spending makes the economic world go round. It does not. Increasing money supply does not magically increase the quantity of land, labor, or capital goods available for production. Creating money out of thin air does not produce more consumer goods, and there is the rub. We cannot eat money. We cannot wear money. We cannot live in money. Even the Beatles knew that money can’t buy you love.

Increasing the money stock can, however, result in higher overall prices for goods, including shares of equity stock. It should not surprise us that when the Fed increases money supply, stock prices rapidly increase. As it drives interest rates down, the Fed encourages investors to put their money anywhere they can get a better than average return. If this be in stock investments, so be it….

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How Obama’s Hidden Tax Hike Destroys Your Savings

Floyd and Mary Beth Brown,

Americans are getting poorer, and the media, in a desperate bid to prop up Barack Obama, are refusing to report the story. The destruction of wealth is the direct result of government policy, and with an almost complete media blackout, many are oblivious to the suffering.

First, despite what you read in the newspapers and hear on TV, taxes are going up. The truth is: inflation is a tax. Inflation is a tax on anyone that transacts in U.S. dollars. Do you use dollars? If you answer yes, then inflation is robbing you.

If you receive a paycheck in U.S. dollars, then it is taxed by inflation. Here is how it works. If your wages are $36,000 dollars a year and inflation is running 3 percent, then if you don’t get a 3 percent raise, you are making less money in real terms by the end of the year. Your money buys you less food, less gas, less housing, less anything than it did at the start of the year. This is why you feel poorer in real terms after you fill up the tank and it costs you $50.00, instead of the $30.00 you paid a year ago.

If you think inflation savages your wages, wait until you hear what it does to Grandma. Anyone who saves in inflating dollars gets slaughtered. Bank savings serve as a good illustration to understand inflation as a tax. For example, the bank today might pay a saver 1.5 percent in interest on a CD. If inflation rises 3 percent, then you actually have less money a year later even if your balance grew.

In the same way, inflation robs mutual funds. If a fund firm charges 1 percent and the fund grows 5 percent, the investor falsely believes they are receiving a net 4 percent for the investment. However, if the inflation rate is 3 percent, the real return to the investor is actually 1 percent. The investor is stuck paying taxes on the entire 4 percent return. Depending on the tax bracket of the investor, they likely are actually paying to hold the mutual fund.

The thievery doesn’t end here. Now officially, the government tells us inflation is low, between 2 and 3 percent. By cooking the books, they keep this number low. If you visit the website you will learn that the government keeps adjusting the way they calculate the rate of inflation. If they calculated it the same way it was in 1990, it would show inflation is much higher than the number the Bureau of Labor Statistics now releases.

For Grandma, the picture is even bleaker….

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How Obama Himself Made More Than ‘Enough Money’

By Jack Cashill, American Thinker

In defending his administration’s efforts at putative financial reform, President Obama suggested a ceiling, perhaps government-imposed, for Wall Street executives. Although he did not begrudge them income that is "fairly earned," he added ominously, "I do think that at a certain point, you’ve made enough money."

The president may be projecting guilt from his own excellent adventures in greed. A surprising 2006 article for the American Century Foundation by liberal publisher Peter Osnos sheds useful light on this subject. As Osnos relates, a 1990 New York Times profile on The Harvard Law Review’s first black president caught the eye of a hustling young literary agent named Jane Dystel.

Dystel persuaded Obama to put a book proposal together, and she submitted it. Poseidon, a small imprint of Simon & Schuster, signed on and authorized a roughly $125,000 advance in November 1990 for Obama’s proposed memoir.

With advance in hand, Obama repaired to Chicago, where the University of Chicago offered him an office and stipend to help him write. Obama dithered. At one point, in order to finish without interruption, he decamped to Bali for a month. Obama was supposed to have finished the book within a year. Bali or not, advance or no, he could not. He was surely in way over his head.

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