Fed News Friday: The Fed’s Balance Sheet

April 15th, 2011

Since we started this blog, and even before, there has been a constant battle between some of the Fed branch presidents over the threat of inflation. You see this word more and more, especially with the rise of stimulus programs and bailouts as common Fed practice. The Federal Reserve has expanded their balance sheet to almost $3 trillion. To some of us $3 trillion can’t even be fathomed in our heads, but this video might help.

Did you hear that? A trillion is DOUBLE what the New Deal was. So now take everything you’ve heard and multiply it by 3. And the Fed is STILL trying to decide if inflation is a true threat or not.

Let’s dig into inflation, where it comes from, and why the Fed is in charge of controlling it…

Wikipedia’s definition of Inflation: Is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.

A great counter definition to inflation can be found by Frank Shosta, of Mises.org. His extensive analysis proves that the dictionary definition of “rising prices” does not explain why inflation is a bad thing. Shosta’s way of defining inflation focuses on the money supply. The devaluation of the currency occurs because of the rise units in the system. This is why prices go higher.

We are arguing the fundamentals of this definition and each version of the definition takes a different solution to fix it. So defining inflation is VERY important. However like we say in Silver Circle, “When they control the money, they control everything.” So in this case the Federal Reserve controls the money and can control how inflation is defined.

The Federal Reserve’s main job is to control inflation and set interest rates. Controlling inflation is the process of expanding and contracting the money supply. However, in the past 8 years we’ve seen nothing but expansion. This level of dollars in the system makes the likelihood of inflation strong. We are talking almost $3 trillion dollars…you watched the video! With the Fed controlling interest rates we haven’t seen much help towards inflation, since the rate has been nearly zero for a few years now.

I’m no PhD in economics however this information seems to be quite the recipe for inflationary disaster. Some organizations are even predicting hyperinflation in the coming years.

Today is the day to share with your neighbors, friends, and family about the Federal Reserve. Show them how much money is being created out of thin air and forced into the system. Some of them may discover and be appalled by this hidden tax, called inflation, that will plague our prosperity if it isn’t stopped.


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