The Great Depression Online

Great Depression Online Archive Issue:

The Task At Hand

Great Depression Online
Long Beach, CA
June 17, 2008

Inside This Issue You Will Discover…

*** A Great Gathering
*** Three Fundamental ideas
*** The Task At Hand
*** And More

A Great Gathering

A great gathering of central bankers, top economists, world improvers, mountebanks, and social dreamers took place on the posh terra firma of Massachusetts Cape Cod earlier this month.  The purpose of the highfalutin assemblage was to meditate on how best to fiddle with the economy.

The event kicked off with a lavish feast of crab cake and steamed mussel appetizers followed by a butter poached lobster with crème fraiche enriched orzo entrée, all washed down with several glasses of Bergheim Pinot Blanc. 

So it was with a stomach full of gourmet cuisine and a head full of libation that these magnificent quacks got down to the task at hand…pinpointing how much money can be picked from your pocket before you notice.

Three Fundamental Ideas

Before continuing on, we must first review three fundamental ideas.  First, that inflation is a monetary phenomenon created by central bankers.  Second, that through inflation, the government secretly confiscates the wealth of its citizens.  And third, that inflation acts as a tax. 

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On the first idea, we’ll look to Nobel Prize winning economist, Milton Freidman, for instruction…

“Inflation is always and everywhere a monetary phenomenon.”

Freidman, in his landmark work “A Monetary History of the United States 1867-1960,” identified a direct link between inflation and the money supply.  He also elaborated that the phenomenon of inflation can be moderated by limiting the amount of money introduced into the economy by the Federal Reserve.

On the second idea we’ll look to English economist, John Maynard Keynes, for explanation…

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

How the confiscation occurs is clarified by the third idea, which we’ll look to United States Congressman and presidential candidate, Ron Paul, for edification…

“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.’”

With that out of the way, we can now continue on with our discussion of the Cape Cod summit and the task at hand.

The Task At Hand

If you’ll remember, before our digression, the task at hand for the misfits in Massachusetts was pinpointing how much money can be picked from your pocket before you notice.

And how do they do that?

By increasing the money supply at a controlled rate, so that inflation is subtle and goes largely unnoticed.  Rather than limiting actual inflation, the Federal Reserve wants to limit the public’s expectations of inflation.  Hence, the inclusion of “…the new buzzwords at the conference, such as the ‘anchoring’ of inflation expectations.”  Greg Robb, for MarketWatch, explains…

“Here is the basic concept: If the public expects higher prices are here to stay, this can be self-fulfilling.”

In other words, central bankers want the public to believe that inflation is minimal and that it isn’t increasing; because if the public begins to suspect otherwise, and demands higher wages or buys products now for fear that tomorrow they’ll be more expensive, then there’ll be more inflation.  Plus if it were to become widely recognized that the Federal Reserve is persistently picking the pocket of the public there would by widespread outrage.

The optimal scenario in the eyes of the Federal Reserve is to continue increasing the money supply, without the public expecting inflation.  Furthermore, they want the “monetary phenomenon” of inflation to be unnoticed…veiled…and hidden, so they can continue to “confiscate, secretly and unobserved, an important part of the wealth of their citizens” through the “inflation tax.”

For example, not long ago there was the alluring milestone of a six figure income.  Once attained, you were a made man.  But $100,000 just ain’t what it use to be.  And using the government’s own inflation calculator (, which many believe understates inflation, we find that $100,000 today is equal to what just $54,608 was worth in 1988.  That means in just 20-years the government, has confiscated about half of the value of this income. 

And what about the unskilled laborer whose earnings have fallen behind even more?  Their $30,000 income today is now equal to what an income of $16,382 was worth in 1988.

With this insidious situation you may find that you’re earning more money, yet you’re becoming poorer.  Pretty neat trick how that works.


M.N. Gordon
Great Depression Online

P.S.  We don’t like inflation.  In fact, we dislike it.  And that it’s a policy of the government makes it down right sinister.  But when you’re making annual returns of +21.4%, it takes the sting out of it.  Learn more how you can over come inflation, through a well proven and time verified investment strategy here: Half-Priced Stocks.


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