You may remember candidate Obama telling Joe the Plumber that he wanted to spread the wealth around. President Obama, in concert with the Democrats and Ben Bernanke have been quite busy.
To understand what’s been done, and how, we need to first understand a bit about how money is created. In a simplified model, the Federal Reserve loans money into existence. The Federal Reserve loans the US Government money and the bonds thereby created are sold on the open market to buyers. These bonds are traded globally, and this is why and how the Japanese and more recently, the Chinese, have come to hold so much US debt. Of course, you can buy bonds too. So can banks. It’s seen as an investment, but with interest rates maintained artificially low, the desirability of the bonds on the market slips dramatically.
We no longer base our money on an objective store of value. Many people reference the end of the Bretton Woods agreement under Nixon, but the truth is that we really came off any reliable, meaningful gold standard under Franklin Roosevelt. Roosevelt arbitrarily set the value of the dollar vs. gold by picking random numbers from within a range, pulling numbers out of a hat, drawing cards, or whatever else he dreamed up at the time. (See: “The Roosevelt Myth” by John T. Flynn)
The Bretton Woods agreement merely formalized the process in 1946, but it continued the basic FDR policy: You, as a person subject to the jurisdiction of the United States, could not redeem your dollars for gold. A foreign bank or government could. By1971, your treasury was emptied and Nixon was forced to announce that we could no longer even redeem dollars held by foreigners with gold. For the period between 1933 and 1971, we functioned on a fake gold standard that was propped up by functioning like a gold standard internationally, but domestically, as pure fiat currency. In short, here at home, what we had was monopoly money, but it looked and spent normally because in the international markets and exchanges, where somebody would quickly notice and complain, the money was backed by gold, until the gold ran out. Most of the gold formerly held by the United States was long gone, to pay foreigners when they presented dollars obtained in trade for redemption. It is literally gone. Only a relative token of that gold survives.
So what gives your money value, if not gold? The answer is simple: It is the confidence of the bond-holders in the debtor’s promise to pay. Imagine you purchase a home. If you were borrowing the money, you would of necessity need to find a bank willing to lend it to you. If they saw you had no job, no business, and no assets, you were a poor credit risk, and you’d not get the mortgage. Mortgage companies trade mortgages, just like bond-traders trade bonds. Debts are basically investments based on the value of the interest due. The investor is betting that inflation will not surpass his earned interest on the mortgage, and therefore, will profit slightly as the mortgage is paid in full. Mortgages with higher interest rates can be better investments, but traditionally, they implied more risk because people tend to get mortgage rates based at least in part on their credit-worthiness.
The value of the US dollar is determined in much the same way. The currency is backed in part by the assets of the people who owe money, and in part by the confidence bond markets have in the probability that as the bonds mature, they will be paid in full, with the expected interest.
Now that we know all of this, and with my apologies to all who already did, let’s get on to the meat of this. Barack Obama, the Congress, and the Federal Reserve have been stealing you blind. Over the last three years, the Fed has lent more money into existence than in all the time since WWII. The Federal Government has been the borrower of record, with the total debt incurred by the Congress and President Obama in that period exceeding four-and-a-half trillion dollars. That’s $4,500,000,000,000.00. It’s a lot of cash. The problem is, the economy in no way produced nearly that amount of additional wealth in that period. The effect is simple: Each and every dollar, the new ones and all the ones that existed beforehand, fell in value. This is engineered inflation, or what the Federal Reserve has taken to calling “Quantitative Easing,” which is a fancy way of saying that they’re digitizing or printing more monopoly-money dollars that will go into circulation with the rest of the dollars, and thereby devalue them all.
Last November, Governor Sarah Palin warned about this practice, telling all who would listen that this would drive inflation, and that it would cause food and energy prices to rise dramatically, and thus stifle the economic recovery until it would be stillborn. We are now reaping that harvest, just as she suggested, and while President Obama releases three days worth of oil from the Strategic Petroleum Reserves to try to hide it, the fact is that the economy is in free-fall. Obama and his crowd planned all of this, because they wanted to commit the largest theft in history. Barack Obama is, himself, an economic buffoon. The man doesn’t know a demand curve from an equilibrium price. His advisors, all of them, are following a script laid out for them by a man who knows how to destroy currency and steal the wealth of nations. He is considered an ‘economic terrorist’ in much of the Pacific rim. I speak of none other than George Soros.
Now, we could delve into the why and how, but it’s much more important, I think, to show you a simplified illustration of how this is being done. I’ve created a few charts here to help illustrate how this works. I’ve simplified it so as to promote understanding, but I am going to explain what you’re looking at, and when you’re done, you can draw your own rational conclusions.
In the first chart, we are starting at day zero. On this day, a dollar is worth a dollar. There are a total of 400 in circulation, and they are distributed as shown. I assume that on day zero, a gallon of gasoline costs $2, and a loaf of ordinary bread costs $1. This is the baseline. You may wonder who is Person 1 , Person 2, Person 3, and Person 4. For the sake of argument, however, we’ll get back to that. Also notice the purchasing power. Notice how many loaves and gallons each person can buy. Take a look at day zero(You can click the image for a slightly larger version:)
Now remembering that there are $400 in total, let’s imagine the Government borrows another $200 from the Federal Reserve, and the Fed must borrow it by issuing bonds. Now there’s a total of $600 in the economy. The Government takes the newly printed/digitized dollars and distributes them, $50 each, to all four persons. There is no new value in the economy. The money’s value has dropped by 50%. Expressed another way, the money is now worth only 2/3s of what it was worth on day zero. Let’s call this day one, and take a look:
As you look at the chart above, you immediately notice that the distribution of wealth has changed. Person 1 and Person 2 have both picked up their share of the wealth. Person 3 has lost a little, and Person 4 has gotten clobbered. Notice that we didn’t ‘tax’ a soul. We merely printed more money into existence, and distributed it differently. Now notice what has happened to the purchasing power of our four persons. Also note that the cost of the gallon and the loaf has risen accordingly. We’re not finished, however. We’re going to come back around and do it again:
Now look at the results. We’ll call this day two, or if your prefer, we can use Federal Reserve Chairman Bernanke’s term, “Quantitative Easing 2.” Notice what has happened. We’ve shifted a good deal of wealth to Person 1, a little bit to Person 2, stolen just a bit from Person 3, and taken Person 4 to the cleaners.
Notice that the price of a loaf and a gallon have doubled. This is because you now have twice as much money in circulation, and no additional material value. Here’s what you need to know, however. Person 1 can be a welfare or other entitlement recipient, or a foreign citizen in a foreign land to whom we’ve gifted money. Person 2 can be a low-skilled, low-wage worker, just below the median income for a family. He’s struggling, and barely getting by. Person 3 is solidly middle class. He either works in a higher-skilled field, or is even self-employed, like Joe the Plumber. He probably barely notices the effect, at first. Person 4 is everybody above that. This is the person that creates almost all the jobs in a free market economy. How do you now expect him to do that?
As Tammy Bruce reminds us, Sarah Palin warned us that this would be the result. Those of us who actually know anything about economics(as opposed to the LameStreamMedia) knew that she was right when she said it. Time has born her thesis. Where was Mitt Romney? He said it was ‘necessary.’ Where were the rest of the Republicans? They were all joining Paul Krugman and Barack Obama in laughing up their sleeves at Mrs. Palin. Most importantly, however, where were you, and what did you believe? Or were you making Thanksgiving plans while they carried out another round of theft?
This is the policy of “spreading the wealth around” that Barack Hussein Obama promised. He’s delivered, but he’s not finished quite yet. Now that he’s thoroughly clobbered the wealth creators by devaluing the dollar, he’s next going to take the rest via taxes, if the Republicans fail to stop him and his cronies in the Senate. If they do, it won’t matter, because he’ll soon announce, through his stooge, Ben Bernanke, perhaps yet another round of Quantitative Easing. They’ll call it “QE3,” and all you will need to know is that another round of theft is underway. It may have worked too well already. Remember when Rush Limbaugh was criticized for saying he hoped Obama would fail? This is what he hoped would fail. It hasn’t. Your wealth and your life are under assault. There is only one answer to this, and it is to send Barack Obama back to Chicago, with the rest of the thugs, and I know just the lady to do it!