Thomas Jefferson said, “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
When controlled by the Federal Reserve, the economy works very much like a guillotine. When the blade is at the bottom, it poses no threat at all. Inflation of the money supply metaphorically raises the blade… higher… and higher… and higher. Most people do not perceive any threat while the blade is going up. Of course the blade eventually reaches a trigger, at which point it begins a rapid fall that decapitates everyone’s investments.
This is exactly what happened early in the 20th century. The “roaring 20s” were a time of success and great prosperity, based on the false profits caused by an inflationary money supply. Then, right after the stock market crash which served as a diversion, the money supply was rapidly contracted, causing “The Great Depression”. American men didn’t suddenly become lazy and refuse to work. American business didn’t suddenly run out of work to be done. There was plenty of work, and plenty of eager workers. Unemployment reached 25% because there wasn’t enough circulating money to pay the workers for their efforts.
Those who cannot learn from history are doomed to repeat it.
– George Santayana
We learn from history that we learn nothing from history.
– George Bernard Shaw
For the last decade, the Federal Reserve has been inflating the money supply at unprecedented rates. In 2006 the Federal Reserve announced that it would no longer publish the value of M3, which is the number of dollars calculated to be in circulation at any given time. It is my sincere belief that is when the FED began inflating the economy even faster, and they didn’t want the general public to know about it.
Now, it appears that the FED has begun to rapidly contract the money supply once again. The economic guillotine has started to drop!
“The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history. The stock of money in the US fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6 percent. The plunge in M3 has no precedent since the Great Depression.”
The American Enterprise Institute supports this thesis. They say:
“During the Great Depression, the Federal Reserve allowed the money stock to fall rapidly because, among other concerns, Fed leaders feared inflation. The disastrous consequences, a serious exacerbation of the economic contraction already underway following the aftermath of a bursting bubble, are fully articulated in Milton Friedman and Anna Schwartz’s Monetary History of the United States, 1867-1960 (Princeton University Press, 1963).”
So? What’s a person to do? None of us can influence the Federal Reserve in any way, shape, or form. So how do we protect ourselves against the ravages of this criminal activity? The American Enterprise Institute says:
“The price of gold, a classic inflation hedge, is up by 8 percent since April. Gold is a hedge for those who fear that the aftermath of the financial crisis may include inflation.”
In other words – invest in precious metals: silver, gold, and lead. Something I’ve been recommending for years.
(FYI – lead helps you protect the gold and silver.)