The Federal Reserve: Ripping off Americans since 1913

Almost exactly 100 years ago, our government gave birth to the Federal Reserve System (known as the Fed) and placed them in charge of protecting the value of the US dollar.  Since then, the value of the dollar has declined by over 95%… Sounds like a Federal Fail to me…

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You might ask, how did this happen?  And why didn’t anyone notice?

Understanding the way it happened is easy.  The Fed controls monetary policy by expanding and shrinking its balance sheet which in turn affects the money supply–and it has created a lot of dollars in the last 100 years. The new dollars go to pay off the old debts—must be nice, huh?

Not really…Because as more and more new dollars go chasing the same amount of stuff, the price of all that stuff goes up!

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The reason most people haven’t noticed is more complex…

For one thing, the way the government calculates inflation (which is what they call prices going up), keeps changing.  In other words, if we calculated it the way they did when they first started measuring it in the early 80s, it would be about 5 times higher than what they report the number to be today.  They don’t want to report the real number because many of the government’s outlays are tied to the official inflation number. By changing the formula (cheating), they can lower their outlays while shrinking the value of the outstanding debt. In the chart below, the blue line represents what the inflation rate would be if they used the original formula.

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So what’s the solution?  Simple…The same solution people have been using for thousands of years to keep their governments honest—the Gold Standard. In the chart below, notice what happens to the inflation rate after 1971 when Nixon took us off the Gold Standard. 

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I’m sure you’ve heard or read so called experts talk about how Gold is a bad investment since it doesn’t pay a dividend or produce income—but that’s besides the point.         

Gold isn’t an investment—it’s money!  It was money five thousand years ago and it’s still money today.  You can go to any country in the world and people will pay you for gold.  No government can print gold.  All governments can print fiat (paper money not backed by anything) currency.  Sooner or later we’ll be forced to go back to the gold standard and when that day comes, you’ll wish you put more of your money into physical gold.  In future posts I’ll explain why. In the meantime, don’t be fooled by fake statistics and make sure your money is protected from inflation.