Fed News Friday: The Fed Steals for the 1%

Whenever I feel despair over the slow progress of our cause I think of the Pope who refused to look through Galileo’s telescope to see the moons of Jupiter because he stubbornly insisted that they did not exist. Today, every man, woman and child is a Pope and those advocating a society with the non aggression principle at the center are like Galileo proposing the heliocentric universe to a population whose entire worldview is shattered by it. Like the Pope they can be hostile, or offended, or afraid, but they can only deny reality so long as they can avoid seeing the facts. This is why I say that the future belongs to liberty, because the slow and steady progress of humanity always tends toward an alignment between the common paradigm and the empirical evidence.  The Popes of the world, who benefit either materially or psychologically from the delusions of the people, can hinder this progress but they cannot contain it.

One of the things that validates this view for me is when I see these fringe ideas take center stage on mainstream platforms. For example, this week at the Huffington Post columnist Tom Mullen published a piece titled, “How the Fed Steals for the 1%.”

I participated in both Occupy San Francisco and Occupy Oakland really early on, and in the beginning there was a very strong anti-Fed attitude, especially in San Francisco. That sentiment took a back seat to a stronger anti-capitalist attitude as the movement grew, and I ultimately left because I can only stomach so much communism. But Mullen rightly points out in his opening paragraph that capitalism is not the cause of the inequity in society, the “completely anti-capitalist Federal Reserve System” is.

The article is more or less a plea with Occupy Movement to look through the telescope at the moons of Jupiter. He succinctly explains how increases in the money supply lead to increases in prices, which erodes people’s savings. This is basic economics and we’ve covered that process about dozen times on this blog. Where Mullen really strikes the root that the Occupy Movement is chewing on is here:

“Everyone knows that the new money and credit created by the Fed flows to Wall Street. That’s where big loans are made and new ventures are launched. While the borrowers do have to pay the loans back, they do so out of profits made from new capital they have acquired. The Fed silently steals this capital from everyone and transfers it to Wall Street.”

This transfer is accomplished through the phenomenon of steadily increasing prices. That is the cost of creating new money. The cost is born by the 99% while the 1% keeps all of the profits.”

That’s the claim. That’s the argument why the Occupy Movement should join our cause. Because even though they may not steal the physical dollar out of the pocket of the 99%, we’re still paying for their schemes through inflation. Mullen even provides the telescope in the form of a spreadsheet from the Fed’s own website tracking inflation from 1800-2008. The spreadsheet tracks the price of a basket of goods that cost $100 in 1800. The price of the same basket of goods fell to $56.74. But from 1913 (the year the Fed was created) to 2008 the price of same basket of goods increased to $1,265.14.

Do you see the connection? Without the Fed prices fell over time as the natural result of productivity. Imagine if you woke up tomorrow and all the prices everywhere were cut in half. Wouldn’t you feel like you’ve received a raise? You could do the same job and earn the same wage, but become increasingly wealthy. Instead, with the Fed, prices constantly rise over time as a result of printing money. So, workers have to constantly beg for raises to keep up with prices and still become poorer. Mullen continues:

“The Fed is the reason that average Americans have worked harder and become more productive over the past century yet have not experienced a corresponding increase in wealth. It is why two people in the average family have to hold jobs just to provide the lifestyle formerly provided by one. The Fed is behind the widening gap between rich and poor.”

So, if the Occupy Movement wants to help the poor and expand the middle class, and they want to be scientific about it, they should Occupy the Fed, not Wall Street. Wall Street is just a bunch of Fat Cats that have elbowed up to the buffet. If we want to get rid of stray cats we’ve got to stop putting out the saucer of cream.