Column by Emiliano Antunez.
Exclusive to STR
Don’t you just love three dollar a gallon gas and spending almost $250 a week on groceries that used to cost you just $200 only two or three years ago? Whoever coined the statement “money is no object” was either Chairman of the Federal Reserve or a high-ranking economist of the Weimar Republic.
Last week in a speech, Fed Chairman Ben Bernanke stated that the current rate of inflation was too low and in essence made the case for higher inflation rates.
That news was most likely received with great enthusiasm by throngs of unemployed and underemployed citizens who were worried they’d have nothing to spend their excess cash on. It also probably caused euphoria amongst millions of Social Security recipients who had just received the news that they would not be getting any cost of living increases this year (dying is cheaper).
Is inflation really necessary?
That all depends on your perspective; if you’re a politician, central banker or Wall Street peddler then the answer is a resounding YES! If you own a small or midsize business, are a salaried employee or on a fixed income of some sort, the answer is HELL NO!
If you’re a politician, inflation is good because it makes all that money you wasted, stole and mismanaged last year seem like a whole lot less this year and beyond (at least until you’ve retired on your nice fat pension and Swiss bank account). If you’re a central banker, inflation is your reason for existence; without it, you would go the way of the Edsel or pet rock. If you’re a Wall Street peddler, inflation gives you a constant comfortable edge over the working stiffs, not to mention it makes what you’re selling a necessary hedge against inflation (talk about a captive market).
If you’re a small business person, inflation means that you will feel pressure of rising wholesale and raw material prices yet you won’t be able to pass them on to your cash-strapped customers who are feeling the pinch of unemployment or underemployment. If you are on a salary, your raises are rarely enough to keep up with inflation rates, mostly due to pressure on your employer from rising wholesale or material prices and consumers’ diminished or mostly static purchasing power. If your are on a fixed income, inflation makes sticking your head in the oven or jumping off a tenth story balcony seem like viable alternatives (maybe this is how they intend to “fix” Social Security).
Property owners don’t fare any better with inflation. Owners of apartment buildings with salaried workers and retirees as tenants will see their property taxes, utilities and repair expenses rise, but they won’t be able to pass these along to tenants because the tenants most likely won’t be able to afford all the increases. This forces the owner to either borrow money to cover repairs, which in turn increases his fixed expenses, or he must sell the building to someone who is duped by the Fed’s inflationary illusion and will eventually lose the building due to the inability to raise rents enough to cover his expenses. Owners of office, industrial or retail properties are affected much the same way, causing them to raise rents on their business tenants, who in turn feel pressure to raise prices on their customers.
A class that benefits indirectly from the Federal Reserve’s Funny-Money policies are government employees, by making it easier for the Federal, state and local governments to create debt (bonds) and raise taxes. Rising real estate prices mean more property tax revenues; rising prices on consumer goods mean more sales tax collections and so on. Public employees’ compensation has increased dramatically over the last 30 years, so much that their compensation on average is double that of private sector workers. This is good news for public employees and their union bosses but not so for us private sector taxpayers.
Falling real estate prices have presented a problem for many state and local governments. During the boom years, these governments took advantage of rising real estate tax collections to expand the size and scope of government and give unsustainable compensation and pension packages to their employees. Though there have been some “cutbacks,” most governments rarely give ground willingly.
To make up for diminished revenues from real estate taxes (i.e., squeeze its citizens in new ways) many local governments are resorting to abusive code enforcement tactics to extract money for violations that may have been committed decades before the current owner purchased the property. Installing traffic monitoring devices like red light cameras or speed detection cameras raise revenue through constitutionally questionable means. “Raising revenue” translated from politician-speak to common English means they’re coming after more of your money.
The best a private sector worker or business owner can hope for from inflation is comparable to being a hamster on a running wheel; you can have the sensation of going places but you won’t get anywhere. Your salary or Social inSecurity payment might rise but so will prices on goods and services, basically cancelling out any gains that you may have perceived you made.
A more telling perspective into the Fed’s modus operandi is what was said about the last Federal Reserve Board meeting in an article in The Miami Herald: “Fed officials, concerned that expectations of lower inflation will become self-fulfilling, are debating whether to encourage Americans to believe that prices will start rising at a faster pace so that they would spend more of their money now, the minutes from last month's meeting showed.” So the Fed would create the illusion of inflation in order to get you to spend money unnecessarily in order to create real life inflation. In a nutshell, things would cost more and you would more than likely have less money because you spent it based on an illusion created by the Fed, making it necessary for you to borrow at higher interest rates to keep up (maybe then you’ll join the retirees with their heads in the oven or flying off balconies).
I don’t know about the rest of you, but I am uneasy with the notion that words and actions of one man--be it Bernanke, Greenspan or Volker--would have such a profound effect on my economic well being. Especially considering that much like Fidel Castro and Robert Mugabe these individuals are not elected. They are only beholden to the politicians who appoint them and the special interest donors who make the politicians’ election possible. Putting monetary policy into the hands of elected politicians as some suggest (citing the Constitution) is absurd.
Enjoy your three dollar a gallon gas while you can because if the Fed has its way, you will be paying a lot more at the pump and at the supermarket. That may bode well for folks on Wall Street, but for all of us down here on Main Street, the future looks bleak, trying to stretch our ever shrinking dollars more than Nancy Pelosi’s face. Maybe we can convince her plastic surgeon to work on our currency.
What is apparent today is that the Federal Reserve holds way too much power over the United States economy and our lives. We must do all we can to make the Fed go the way of the Edsel or the pet rock. If not, we will very soon witness an economic disaster that will take the place of the Great Depression in the annals of history. Exactly the type of disaster that the politicians in 1913 who created the Fed said it would prevent. Some things never change.