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The Federal Reserve's Explicit Goal: Devalue The Dollar 33%


By Thedaytoday   Follow   Fri, 25 Jan 2013, 2:50am PST   26,582 views   532 comments   Watch (0)   Share   Quote   Permalink   Like (4)   Dislike (2)  

The Federal Reserve's Explicit Goal: Devalue The Dollar 33%

The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

An increase in the price level of 2% in any one year is barely noticeable. Under a gold standard, such an increase was uncommon, but not unknown. The difference is that when the dollar was as good as gold, the years of modest inflation would be followed, in time, by declining prices. As a consequence, over longer periods of time, the price level was unchanged. A dollar 20 years hence was still worth a dollar.

But, an increase of 2% a year over a period of 20 years will lead to a 50% increase in the price level. It will take 150 (2032) dollars to purchase the same basket of goods 100 (2012) dollars can buy today. What will be called the “dollar” in 2032 will be worth one-third less (100/150) than what we call a dollar today.

The Fed’s zero interest rate policy accentuates the negative consequences of this steady erosion in the dollar’s buying power by imposing a negative return on short-term bonds and bank deposits. In effect, the Fed has announced a course of action that will steal — there is no better word for it — nearly 10 percent of the value of American’s hard earned savings over the next 4 years.

Why target an annual 2 percent decline in the dollar’s value instead of price stability? Here is the Fed’s answer:

“The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public’s ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling–a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term.”

In other words, a gradual destruction of the dollar’s value is the best the FOMC can do.

Here’s why:

First, the Fed believes that manipulation of interest rates and the value of the dollar can reduce unemployment rates.

http://www.forbes.com/sites/charleskadlec/2012/02/06/the-federal-reserves-explicit-goal-devalue-the-dollar-33/

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mell   befriend   ignore   Sun, 27 Jan 2013, 10:43am PST   Share   Quote   Like   Dislike     Comment 13

iwog says

Printing a $100 bill, creating a job that pays $100, and expanding the available market by $100 worth of merchandise DOES NOT CAUSE INFLATION!

It does as soon as you created that $100 bill, albeit very small since $100 is nothing compared to the total money outstanding. But let's assume it's all dandy, why can't I legally print my own $100 bills as many as I want? After all I am going to create and help keep many jobs with that money, and I am going to help myself! Win-win, no?

mell   befriend   ignore   Sun, 27 Jan 2013, 10:51am PST   Share   Quote   Like (1)   Dislike     Comment 14

But if I had to print money for the "greater good" I would try and dispense all that money among the poor and maybe middle class, knowing some of it will trickle up when they buy stuff - this is inevitable. But I certainly would not give it to the richest and those who have first access to it like it has been done - criminal. The small amount that trickled down to the poor after the banks borrowed all that new money for zero is a drop in the bucket. The poor and middle class hardly had any access to it. Some who qualified - likely not poor but middle class - were able to get cheaper loans, but that is after the banks took their profit by borrowing for zero and lending for 3% - how is that helping anybody but the banks? Criminal.

curious2   befriend   ignore   Sun, 27 Jan 2013, 10:55am PST   Share   Quote   Like   Dislike     Comment 15

iwog says

The question YOU need to answer is how can the fed triple the base money supply since 2008 and NOT cause horrendous inflation? What about the example of Japan?

Past performance does not guarantee future results. The Fed's recent increase in money supply has been soaked up by foreign investors and speculators, in addition to the factors you identified: falling demand and reduced velocity associated with hoarding at the very top. (Inflation is conspicuous where they shop though, e.g. at the high end of the art market; if you want to buy an original Munch painting, it will cost you a lot more now than a few years ago.)

Regarding Japan, it will be very interesting to see how they fare as their population ages and their trade surplus swings into deficit. Up to now, their budget deficits have been offset by their high personal savings rates and global demand for their exports.

mell   befriend   ignore   Sun, 27 Jan 2013, 11:06am PST   Share   Quote   Like   Dislike     Comment 16

iwog says

The question YOU need to answer is how can the fed triple the base money supply since 2008 and NOT cause horrendous inflation? What about the example of Japan?

That has definitely to do with velocity. There are quite a few people who keep griping here on patnet about the wealthiest percent hoarding all that cash that needs to be taxed (maybe rightfully so), so there is not much velocity. But it all lies in the eye of the beholder, while you might be pleased about the recent rise in housing prices in the bay area, I'd call that maybe not (yet) horrendous, but significant inflation.

iwog   befriend   ignore   Sun, 27 Jan 2013, 11:21am PST   Share   Quote   Like   Dislike     Comment 17

mell says

That has definitely to do with velocity. There are quite a few people who keep griping here on patnet about the wealthiest percent hoarding all that cash that needs to be taxed (maybe rightfully so), so there is not much velocity. But it all lies in the eye of the beholder, while you might be pleased about the recent rise in housing prices in the bay area, I'd call that maybe not (yet) horrendous, but significant inflation.

Increasing the velocity increases the demand for goods which increases the production of goods. You cannot simply pretend that printing money is like filling a bathtub. The actual bathtub WILL ALWAYS EXPAND WITH DEMAND. How much? That is an unknown however it is never talked about.

iwog   befriend   ignore   Sun, 27 Jan 2013, 11:24am PST   Share   Quote   Like   Dislike     Comment 18

mell says

why can't I legally print my own $100 bills as many as I want? After all I am going to create and help keep many jobs with that money, and I am going to help myself! Win-win, no?

Because you aren't special. Allowing everyone to print money would eliminate demand, not create demand. Why produce wealth when you can steal it from others via printing?

However printing up $5,000 for each taxpayer and sending it to them via a check is not going to cause anyone to quit their job. In fact it will create a mad scramble as everyone tries to earn as much of the windfall as possible. Car manufacturers will go into overtime production, hire new workers, and create new wealth.

mell   befriend   ignore   Sun, 27 Jan 2013, 11:38am PST   Share   Quote   Like (1)   Dislike     Comment 19

iwog says

Because you aren't special. Allowing everyone to print money would eliminate demand, not create demand. Why produce wealth when you can steal it from others via printing?

You have no idea how special I am in my plight of investing in small novel biotechs - definitely more special than the TBTF banks, the squid, the JP Morgue and the likes ;)

curious2   befriend   ignore   Sun, 27 Jan 2013, 11:39am PST   Share   Quote   Like (3)   Dislike     Comment 20

iwog says

printing up $5,000 for each taxpayer and sending it to them

...would be much better than the current policy of handing it to TBTF bankers, lemon socialists, and crony capitalists.

mell   befriend   ignore   Sun, 27 Jan 2013, 11:39am PST   Share   Quote   Like (1)   Dislike     Comment 21

Besides I don't want the government to decide who is special.

New Renter   befriend   ignore   Sun, 27 Jan 2013, 11:43am PST   Share   Quote   Like   Dislike     Comment 22

mell says

You have no idea how special I am in my plight of investing in small novel biotechs

You invest in small, novel biotech? Seriously, WHY?

HeadSet   befriend   ignore   Sun, 27 Jan 2013, 12:04pm PST   Share   Quote   Like (1)   Dislike     Comment 23

iwog says

We are currently in a demand side crisis. Giving Americans money will cause increased production which will offset the amount of money created by growing the market. This is how the REAL economy works.

Worked for Zimbabwe

JodyChunder   befriend   ignore   Sun, 27 Jan 2013, 12:20pm PST   Share   Quote   Like   Dislike     Comment 24

MsBennet says

If the value of the dollar is declining, then it seems like a good idea to purchase real estate and lock in that purchasing power in 2012 because it will take 50 percent more money to buy that property in 2032.

Nah...they'll craft some means by which to get you into as much debt as you'd like in the future, too. Don't worry.

JodyChunder   befriend   ignore   Sun, 27 Jan 2013, 12:22pm PST   Share   Quote   Like (1)   Dislike     Comment 25

iwog says

Because you aren't special.

Special is code for retarded, so this is sort of an oblique compliment.

mell   befriend   ignore   Sun, 27 Jan 2013, 12:22pm PST   Share   Quote   Like (1)   Dislike     Comment 26

New Renter says

mell says

You have no idea how special I am in my plight of investing in small novel biotechs

You invest in small, novel biotech? Seriously, WHY?

Not exclusively, but mostly. I have studied a fair amount of medicine and medical research the most interesting things are happening in small biotechs (some scams too, but that happens in every sector) as big pharma is more focused on squeezing the last bit out of their expiring patents and then continue their M & A spree. Plus I like to gamble (no margin/debt though) ;)

Vaticanus   befriend   ignore   Sun, 27 Jan 2013, 1:27pm PST   Share   Quote   Like (1)   Dislike     Comment 27

iwog says

mell says

Printing money backed by nothing is NOT creating anything and causes inflation by devaluing each other dollar out there of everyone else, even a 5 year old can understand that.

Don't take economic opinions from a 5-year old.

Printing a $100 bill, creating a job that pays $100, and expanding the available market by $100 worth of merchandise DOES NOT CAUSE INFLATION!

Apparently this reality is lost on you and your 5-year old economics professor.

We are currently in a demand side crisis. Giving Americans money will cause increased production which will offset the amount of money created by growing the market. This is how the REAL economy works.

Where can I sign up for this money you are giving Americans? I thought only the banksters were able to get free money?

New Renter   befriend   ignore   Sun, 27 Jan 2013, 3:13pm PST   Share   Quote   Like (1)   Dislike     Comment 28

mell says

New Renter says

mell says

You have no idea how special I am in my plight of investing in small novel biotechs

You invest in small, novel biotech? Seriously, WHY?

Not exclusively, but mostly. I have studied a fair amount of medicine and medical research the most interesting things are happening in small biotechs (some scams too, but that happens in every sector) as big pharma is more focused on squeezing the last bit out of their expiring patents and then continue their M & A spree. Plus I like to gamble (no margin/debt though) ;)

I've worked in a few of those SV biotechs. I'm STILL waiting for my stocks to be worth enough to buy something from the Taco Bell dollar menu...

curious2   befriend   ignore   Sun, 27 Jan 2013, 4:40pm PST   Share   Quote   Like (3)   Dislike     Comment 29

mell says

the most interesting things are happening in small biotechs (some scams too, but that happens in every sector) as big pharma is more focused on....

DTC advertising and lobbying. Alas PhRMA scored a really big deal with ObamaCare, which will subsidize pills and increase taxes on vaccines and devices. Getting hundreds of billion$ in subsidies directly from government is impressive in itself, but bribing that same government into starving and taxing your competitors is priceless. At best, small biotechs can hope to be bought out by big PhRMA, but drug companies aren't interested in producing technologies that would reduce their own revenues. It's a terrible shame really, the gap between what could have been and what is; future generations may look back and wonder how we can have been so stupid.

Back to the original topic, good investments are difficult to identify because the whole economy is being reoriented around TBTF corporations that can buy politicians and change the rules to suit themselves. And, those same corporations are being looted by their own executives, who tip out to politicians' campaigns. Just as the best investment in Russia is proximity to Putin, the best investment in America is lobbying, and it's the biggest players who win that game. This applies in the medical sector as well as banking, where the big players get even bigger so they can secure their seats in the Capitol.

zzyzzx   befriend   ignore   Sun, 27 Jan 2013, 10:20pm PST   Share   Quote   Like (1)   Dislike (1)     Comment 30

Thedaytoday says

it announced its goal to devalue the dollar by 33% over the next 20 years.

Haven't they been doing this, or more, every 20 years already?

Quigley   befriend   ignore   Mon, 28 Jan 2013, 12:34am PST   Share   Quote   Like (1)   Dislike     Comment 31

The problem with giving the poor or working classes another $100/month is that Iwog notices and raises their rent $100/month. Net result: Iwog gets a raise.

mell   befriend   ignore   Mon, 28 Jan 2013, 12:37am PST   Share   Quote   Like   Dislike     Comment 32

Quigley says

The problem with giving the poor or working classes another $100/month is that Iwog notices and raises their rent $100/month. Net result: Iwog gets a raise.

Haha, love it. That's the problem with free money, it debases the currency and tends to trickle up. Next thing you have to do is immediately tax that money away from the rich and distribute it back at the bottom ;)

bob2356   befriend   ignore   Mon, 28 Jan 2013, 2:38am PST   Share   Quote   Like   Dislike     Comment 33

iwog says

he question YOU need to answer is how can the fed triple the base money supply since 2008 and NOT cause horrendous inflation?

Because base money supply (M1) isn't the whole story or even close. I don't see 1400 to 2400 as tripled but you always have a unique system of math. Look at history:
http://www.shadowstats.com/charts/monetary-base-money-supply
M3 barley budged even though M1 skyrocketed. Where is the M3 spike?

Why wasn't there horrendous inflation in 87 or 92 when there were similar jumps in M1? Taking one single data point isn't much value, but certainly makes for a dramatic argument.

EBGuy   befriend   ignore   Mon, 28 Jan 2013, 6:23am PST   Share   Quote   Like (1)   Dislike     Comment 34

Headset said: Worked for Zimbabwe
The irony is that Zimbabwe is on the mend now that they've settled on the US dollar as their currency.

uomo_senza_nome   befriend   ignore   Mon, 28 Jan 2013, 8:19am PST   Share   Quote   Like (1)   Dislike (2)     Comment 35

iwog says

We are currently in a demand side crisis. Giving Americans money will cause increased production which will offset the amount of money created by growing the market. This is how the REAL economy works.

It's the private debt, stupid!

demand is destroyed because of too much debt. not the other way around.

uomo_senza_nome   befriend   ignore   Mon, 28 Jan 2013, 8:24am PST   Share   Quote   Like (1)   Dislike     Comment 36

iwog says

Why produce wealth when you can steal it from others via printing?

The exact same question is applicable to the banker cabal as well. Finance is rent seeking through seignorage.

The only way rent seeking can be avoided is through public policy.

iwog   befriend   ignore   Mon, 28 Jan 2013, 12:42pm PST   Share   Quote   Like (1)   Dislike     Comment 37

uomo_senza_nome says

It's the private debt, stupid!

That's what bankruptcy is for. Private debt is money owed to ourselves. I don't think there are severe macro-economic consequences beyond the usual problem of wealth disparity.

iwog   befriend   ignore   Mon, 28 Jan 2013, 12:46pm PST   Share   Quote   Like (1)   Dislike     Comment 38

bob2356 says

Because base money supply (M1) isn't the whole story or even close. I don't see 1400 to 2400 as tripled but you always have a unique system of math. Look at history:

M1 isn't the base money supply. M0 is the base money supply. Nice try but you may want to get your ducks in a row next time before shooting yourself in the foot. Here is my unique system of math:

bob2356 says

Why wasn't there horrendous inflation in 87 or 92 when there were similar jumps in M1?

Ummm......because I'm right? LOL

bmwman91   befriend   ignore   Mon, 28 Jan 2013, 5:47pm PST   Share   Quote   Like   Dislike     Comment 39

lol

iwog says

uomo_senza_nome says

It's the private debt, stupid!

That's what bankruptcy is for. Private debt is money owed to ourselves. I don't think there are severe macro-economic consequences beyond the usual problem of wealth disparity.

There would be no real consequence if consumers declared bankruptcy en masse to shed debt? What happens to all of the pension funds and investment products that are made from securitized consumer debt? Personally, I'd be tickled pink if various Wall Street urchins had to live in cardboard boxes and suck dick for ramen noodles, but I don't think that massive consumer deleveraging can be done without massive consequences. We'll likely get to see the consequences when the student loan bubble pops, although I'd put my cards on the government printing money to sate the loan-holders.

Your comment about the government giving everyone $5000 is correct in the short-term. We saw it in action with the house buyer credit. It only works as long as it keeps up, and that was in the RE space. We also saw it in action with the car credit. Again, things only boomed as long as the government kept giving free money to everyone. So, you were right, right? I don't think so when looking at the mid- to long-term. Given our current reality, it works as long as other nations that produce most of what we consume still accept dollars for their goods. Giving Americans free money off the press has, and would continue to create lots of growth in China. It will not create production jobs in the US because those are not coming back. Aside from the fact that corporations will keep producing overseas because of the lower cost, the logistics of trying to get an efficient supply chain set up between raw material sources in Asia and production facilities in America is not remotely cost effective. Pumping money into consumers grows America's FIRE sector, which does not produce any actual goods. Services are important, but an economy cannot run on them alone. The only reason that those jobs are still around is because you actually have to be present to render most services. Giving Americans free money will get them more STUFF in the short term, but it will not get them to a position where they are economically self-sufficient because it won't create jobs that produce real goods in the America we see in our current reality.

What $5000 for everyone would do is get people more stuff, and raise prices on things with relatively fixed quantities like RE (building takes time). Remember that home buyer credit?

You seem to be into Keynes' ideas, many of which make sense in a vacuum. The thing is that they never took into account regulatory capture, massive outsourcing or executive boards whose goal is to raise mega-corporations' stock valuations by any means (many of which aren't good for the corporations' long term health). I am not going to try to argue that the Austrians, or the Public Choice school or the New Political Economy school are completely right either, because if ANY school of economic thought could actually peg all economic behavior, the world would probably be very different. But Keynes' theories, while brilliant mental exercises, are as myopic as the rest.

bob2356   befriend   ignore   Mon, 28 Jan 2013, 6:42pm PST   Share   Quote   Like   Dislike     Comment 40

iwog says

M1 isn't the base money supply. M0 is the base money supply.

Nice try, but it base money supply isn't any kind of official term. M0 is called the monetary base but so is MB, and sometimes even M1 depending on the economist. If you had said monetary base then I would have looked at M0 or MB.

Where is all the money, try looking at bank reserves. ?w=500&h=300

Pretty nicely tracks the spike in M0 doesn't it? Go read more deeply the difference between monetary base and money supply. If the banks don't lend the money out the broader money su