Inflation: Piles Of Cash To Purchase Things
Dan Harkey
Educator and Private Money Real Estate Lending Consultant | 30,000 + connections
By Dan Harkey
In 1913, a five-course meal and iced tea could be yours for just 10 cents. This was the year the Federal Reserve banking system was established, marking a significant milestone in our economic history and connecting us to our past.
It's been approximately 111 years since the Federal Reserve banking system was established in 1913. Over this period, average inflation has been 3.16% annually, but with compounding, it has increased by a staggering 3,074%. This figure, a direct result of the Federal Reserve's actions, is a reality that many of us live with, whether we realize it or not, shaping our economic landscape.
Inflation Calculator:
The Federal Reserve System is not our friend. Quite the contrary, the relationship to us is the opposite of friend. The six wealthiest bankers arranged a secret meeting at a remote location on Jekyll Island, off the coast of Georgia. This group of wealthy bankers controlled approximately 45% of the banking in the United States. They designed a cartel whereby members (privately owned banks) would lend between members to avoid bank runs. Participants laid the foundation around 1910 as a response to the financial crisis 1907.
Inner-bank lending, a practice that allowed member banks to lend to each other, increased the leverage of these banks and eventually drove all non-member banks out of business. This practice was designed to prevent bank runs, which occur when large groups of depositors panic and demand the withdrawal of their money, either out of fear of bank insolvency or by creating it through mass withdrawal. In simpler terms, it's like a group of friends lending money to each other to avoid financial crises.
The U.S. government liked and elected to adopt the inner bank lending system, merging the government’s interest with the private banking cartel.? I guess you could call it the grand public-private partnership. Congress created the Federal Reserve System to provide the nation with a safer, more flexible, and more stable monetary and financial system that significantly influences our economy and society.
The Federal Reserve System was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act. It consists of 12 privately owned banks merged with government ownership and control and a Board of Governors in Washington, DC. While the Board of Governors is independent, the Federal Reserve Banks act like private corporations. Member banks hold stock in the Federal Reserve Banks and earn dividends.
Reference-History of the Federal Reserve banking system:
The Creature From Jekyll Island is a fascinating book about the creation of the Federal Reserve System. It is a beautiful read that I could not put down once I started. I keep a hardbound copy in my office.
Here is a summary of The Creature from Jekyll Island.
Governments have three methods of raising capital for operational expenses: taxing, borrowing, and printing new fiat currency (money).
The Federal Reserve, as the central bank of the United States, is responsible for injecting newly created fiat money into the U.S. monetary system. This is done through a process known as open market operations, where the Federal Reserve buys or sells government securities to control the money supply and interest rates.
In response to bank runs in 1928 and 1933, the Federal Deposit Insurance Corporation (FDIC) was established. The FDIC is an independent federal agency that aims to insure bank and thrift deposits in bank failures. By promoting sound banking practices, the FDIC seeks to maintain public confidence and encourage stability in the financial system.
Almost 111 years later, the question today is whether the FDIC has adequate reserves to insure deposits. The FDIC has 650 billion dollars of U.S. treasuries, essentially insolvent, as is the entire banking system. It has a 1.5% to 2% portfolio yielding treasures that, on a mark-to-market valuation, are worth less than half. It only does so with borrowing from the Federal Reserve, which must create new fiat currency (new debt) to respond. ?
The Glass-Steagall Act of 1933 required the separation of investment and commercial banking operations. This separation was a by-product of inner-mixing bank activities that led up to the Great Depression. Mixing investment activities with banking operations was considered too risky and speculative.
The Gramm-Leach-Bliley Act of 1999 reversed the Glass-Steagall direction by removing legal barriers preventing financial institutions from providing banking, investments, and insurance services as combined business services.
Today, banks and non-bank financial institutions are some of the most highly leveraged operating companies in the U.S. Banks and non-bank financial institutions regularly invest with minimal limits in extremely high-risk and highly leveraged securities.? They ratchet up leverage positions to maximize yields by purchasing positions in casino-style financial bets in derivatives contracts.? Little regard is given to the safety measures of bank depositors. ?Even reserve requirements have been eliminated so that banks are no longer required to keep any reserves on hand for protection in case of excess demands for depositor withdrawals. ?
Inflation directly results from the government’s endless injections of new fiat currency into the economic system, which becomes a corresponding future debt to the taxpayers. ?Our future sovereign debt, of course, is a systemic fraud because the Federal Reserve and the leaders of this country never plan on paying the debt off or even reducing it.? As the Federal Reserve pumps more money into the economic system, there is a corresponding reduction in the dollar’s purchasing power (debasement). ?Goods and services cost incrementally more. ?With debased dollars paying off, the debt assumes that payments would be made severely diminished valued dollars (cheaper dollars).
Productive taxpayers can only see future debt piled upon future deficits that they view as their responsibility to repay, as a government national credit card for which they are on the hook. ?Welfare recipients and the impoverished class rely on increases in free handouts to compensate. The top tier taxpayers of 1% paid 38.8%, the top 10% paid 71%, and the 25% of taxpayers paid 87% of the federal taxes. ?All these folks should be very concerned about runaway government spending. ?The bottom 50% of taxpayers in the U.S. pay about 3% of federal taxes. ?Low-income earners and retired folds relying on Social Security for living costs get crucified by the devil called inflation. ?This lower socioeconomic tier is first and most severely harmed by inflation and reduced purchasing power because of their limited discretionary or nonexistent incomes.
The U.S.’s financial problems include accumulated disclosed direct debt of about $30.3 trillion and an estimated $150 to 200 trillion of unfunded, underfunded, and not-disclosed future obligations for Social Security, Medicare, Military, and Federal employee pension obligations.? These figures are well disguised on purpose. ?Remember George Bush Jr’s remarks and debate with Al Gore when Gore’s economic statistics were called “Fuzzy Math”?? How would the public react if they understood that their future retirement had been stolen, misallocated, and unavailable when needed?
Most, if not all, current and future financial obligations of the U.S. must come from a combination of current general funds based on tax receipts and newly minted fiat currency in the form of U.S. Treasuries as future debt. ?This future debt is sold to the public, corporations, and other sovereign nations as treasury securities, backed by the full faith of the U.S. Government. ?Some entities invest in treasuries for safety, and some are out of compulsion (forced for political expediency).
Suppose one inquires about the solvency of the Social Security trust fund from the mainstream media or online web news.? In that case, they will tell you that Social Security has almost $3.5 trillion in trust fund assets (so-called-not).? But they will fail to tell you that all the Social Security trust funds are invested in U.S. low-yielding Treasuries. ?Treasury securities are debt created by the government and must be repaid upon maturity. ?Social Security is a pay-as-you-go system that current taxpayers pay to benefit retired folks. ?If financial demands for Social Security and Medicare exceed current tax receipts from taxation, the remainder must come from the Social Security trust fund. ?But are little or no liquid assets or cash available in the fund?
I want to pay my bills and credit cards where someone else is responsible for repayment.? Any payments demanded from the Social Security trust fund would require the government to free up money by paying off a corresponding amount of U.S. Treasuries (IOUs) held as trust fund assets.? Where will the money come from for the government to pay off the Treasuries?? If the government cannot locate liquid capital, it must create it by issuing new treasuries for new parties to purchase to replace the old.? What a great trick to pull upon the American public!
They swapped the accumulated liquid assets sitting on the books of these Trust Funds for debt instruments that are?expected to be owed and paid from future taxpayer receipts. ?Switching debt you owe and calling it an investment asset is the ultimate form of financial prestidigitation (magic trick). ?Yes, an asset held on your behalf is misappropriated into debt, and you are responsible for paying it in the future.
Special Studies by the Historian’s Office of Social Security and Research Notes:
https://www.ssa.gov/history/BudgetTreatment.html
Remember the 1980’s rock group Queen? ?Freddy Mercury was the lead singer, songwriter, record producer, and, in my opinion, the most outstanding male singer ever. ?He was known for his flamboyant stage persona and four-octave vocal range. ?He could sing classic rock-in-roll as well as serious opera. ?Ironically, he was born Farrokh Bulsara in 1946 in Zanzibar to Parsi-Indian parents.
“The Show Must Go on. The Show Must Go On. Yeah, inside, my heart is breaking. My makeup may be flaking, but my smile still stays on.”
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Your future social security payments are an example of “The Show Must Go On.” Proceeds for social security payments are just a hollow shell of current taxation and debt, which may be paid from current taxpayer receipts or by the government issuing new debt instruments, sold to convert proceeds to cash, and spent now.? Still, the accrued government direct debt obligations, the interest due, and the under-funded pension and medical obligations will eventually eat up the entire national budget.? This strategy has worked so far in our history. ?It is bookkeeping magic. ?“But the smile still stays on.”
Consider the global giant debt bomb, the unfunded portion of social security, Medicare, Medicaid, Military, and public employee pension shortfall. ?This $150 to 200 trillion estimate does not appear on government accounting books as a liability.? Like a boiling pot of water, the debt simmers, soaking the working-class public through increased taxation, regulation, inflation, and reduced purchasing power (debasement). ?The retired public may or may not know that no trust funds exist because they have always received their checks.
These are loans to the government borrowed from the public that will never be paid back, except by a massive erosion of the dollar's purchasing power (debasement). ?The government understands that the nasty bogey called inflation will reduce the value of the debt.
The government leaders also encourage a massive influx of new legal and illegal foreigners, who are assumed to pay taxes eventually. ?The reality is not an immediate solution since 63% to 70% of newly arrived illegal immigrants go on welfare or subsistence government transfer payments, compared to 35% of the native households. Different articles and statistics differentiate between undocumented non-citizens, illegal immigrants, and non-citizens.
Social Security and Medicare programs cost 8.7% of gross domestic product (GDP). ?GDP is approximately 29 trillion—twenty-two trillion times 8.7%= $2.5 trillion annual expenses. If you use $2.5 trillion divided by the number of retired 70 million, then each person costs $35,714 annually. ?Social Security is about .6% to administrate, and Medicare is about 2%. ?Private insurers may spend between 12% to 18% on administration costs. ?End-of-life medical expenses may exceed $150,000 per retiree. ?About 2% of retirees, about 1.4 million die per year.
There are currently 10,000 people retiring each day, or 3,600,000 per year. If 3.6 million arrive on Social Security rolls and 1.4 million die, the net increase is 2.2 million added to the rolls. Each retiree will cost the public an estimated $35,714 ?per year or an additional $61 billion yearly for social security.
With COVID, the propensity for retirement drastically changed. In 2019, there were approximately 64 million retirees (pre-COVID). Adding 3.5 million per year over the next 10-15 years will result in 100 million retirees who expect financial support for retirement income and medical care. But that statistic is in a pre-COVID timeframe.
COVID brought about a massive spike in retirement and social security applications. ?The number of Social Security recipients skyrocketed. ?In 2019, about 64 million people received Social Security benefits. ?In 2021, this number rose to 69.8 million or 70 million. -- 70-64=6 million additional retirees in a matter of 2 years.? The increased number, including 2022 retirees, will reflect a dramatic increase in retirees who apply for and receive social security in just three years.
We are facing turbulent financial trade winds this year and next. ?Interest rates should rise to combat inflation. ?Wall Street, big banks, and large corporations will be beating the drums not to raise rates. ?Borrowing cheap money and leveraging investments is their mantra. ?With artificially low interest rates, projects become profitable because borrowing is affordable. ?Valuations rise accordingly, even to irrational and exuberant levels.? But the minute rates begin to rise, profits and irrationally high valuations evaporate, and fall back to earth. ?Boom and bust cycles are not an inherent trait of capitalism but are caused by central bank intervention.
Regardless of the conclusion, the Federal Reserve will be there with their trusty computers to readily inject many additional dollar digits (trillions) to continue the U.S. financial Ponzi scheme (spend now and expect someone in the future to repay).
Our entire economic system of governance requires a never-ending Ponzi strategy. Future taxpayers will always be necessary to pay for today’s government expenses. The system will collapse if future spenders have no money because of high taxes, excessive regulations, or refusal to buy stuff.
The government and mainstream media propaganda machine will make public observers think everything is rosy. ?The propaganda aims to keep the population preoccupied with revolving crises designed to frighten them into compliance and submission.
All new fiat currency the government creates is designed to keep the population happy, the government in power, and the voting block reliable. ?The Ponzi system’s pursuit is conning the public into submission to a perpetual-motion downward economic quagmire. ?It’s truly a wonderful day in the neighborhood when the government-backed borrowed money flows freely, knowing it will never be paid back. ?Of course, most beneficiaries of free-flowing borrowed funds are directed to (friends of the government.)
The U.S. tax base is staying the same. Federal taxes are collected at approximately $5 trillion; if we add all state and other forms of taxation, the total is about $6.5 trillion. The federal government spends nearly twice as much as it takes, meaning a $2 to 3.5 trillion shortfall must be borrowed.
The only viable solution the U.S. Federal Reserve has is to keep creating fiat money to plug the financial drain dike. ?What used to be directly on the book’s debt under President Ronald Regan (1/20/1981 to 1/10/1989) of 2 trillion is now $40 trillion and will become $100 trillion in our lifetimes. ?Since then, the U.S. has gone from the world’s largest international creditor to the world’s largest debtor nation.
The speed of issuing new currency into the system and the subsequent debasement of the dollar is accelerating into uncharted territory, more than ever, in our adult lives. ?There will be massive upward price pressure on all goods and services to which the public will be subjected. ?Since inflation is caused by an increase in money supply relative to goods and services, the government’s propensity to print fiat currency is experiencing more than a significant increase in the money supply.? Never mind that there is a corresponding increase in national debt!
Government actions are always the root cause of inflation. There was no inflation in the American colonies because there was no mechanism to print fiat currency. Between 1775 and 1779, Congress issued $225 million in fiat Continentals (currency), a massive sum for the time. Subsequent inflation caused prices to rise in 1776=12.99 %, 1777=21.84 %, 1778=30.19 %, and 1779=-11.59 % (minus). Any rational mind would think that our elite governing leaders would recognize that deficit spending feeds the inflation spiral and needs to be limited. ?
There has been ongoing financialization and globalization over the past 50 years of the Federal Reserve, Wall Street, and mega-banks. ?By manipulating interest rates to near zero and investing in derivatives contracts, the insiders boosted their wealth upward to an unimaginable level, at least $50 trillion.?Greed by beneficiaries of inflation, including the Central Bank, Wall Street firms, megabanks, and large corporations, will work hard to keep the illusion going in their favor. ?Their savvy public relations people might object to the above statement.
Wall Street, megabanks, and large corporations benefit from high inflation by operating with highly leveraged investments. ?Financial leveraging means investing very little capital, borrowing cheap money, and using derivatives to leverage at a much higher level. One percent capital and ninety-nine percent leveraged borrowing are not abnormal until things go wrong. ?Leveraged investments with super cheap borrowing costs are why Wall Street, megabanks, and large corporations won’t raise interest rates.
The disparity is frightening. ?The wealthiest 10% has increased to at least 70% of all U.S. wealth applied to asset ledgers. ?The bottom 50% held 2% of U.S. Wealth. ?They have created the most significant financial bubble since the 1680 tulip.
Artificially low interest rates harm savers who rely on bank interest for income, U.S. securities holders, corporate bondholders, and other interest income-related investment strategies.??
The distortion of economic reality created by artificially low interest rates is complex because Wall Street and megabanks have tight control over government actions. ?They might object to that statement for public posturing. ?But wait, if the market crashes, the elites will merely ask the government to bail them out again. ?Elite leaders in the executive branch of the U.S. government are handpicked from Wall Street firms, notably Goldman Sachs, BlackRock, The Vanguard Group, and JPMorgan Chase & Co. BlackRock has $10 Trillion in assets under management. ?Vanguard has $8.5 Trillion in assets under management. ?The magnitude of these figures is staggering, considering the U.S. has a total GDP of $22 trillion. ?You can rest assured that the oligarchs in the U.S. have control over almost all actions of government. ?Money begets power.? Money and power produce influence.
U.S. direct on the book’s debt will balloon to $50 to $100 trillion in the next meltdown.? Some Wall Street firms, megabanks, and large corporations will become insolvent from derivatives losses. ?They will be bailed out, just like in 2007-8.? Once the next bailout is complete, they will high-five each other and issue big payout bonuses for their hard work, creating a colossal financial mess. ?Just as they did in the 2007-8 bailout, they will take a vacation for all their hard work driving their companies into insolvency. ?The public is provided little or no information on these bailouts. ?Only the governing elites have full knowledge.
The ongoing strategy will eventually crash. ?No one knows when the cows will come home, and the system collapses. ?However, the Ponzi strategy has been systematically successful, with a few bumps for over 225 years. ?Ponzi is an investment swindle strategy. ?Current participants rely on existing occupants/taxpayers to pay the government the costs with borrowed funds and expect future generations of occupants/taxpayers to repay the debt. ?Those new taxpayers can only be paid back by collecting additional funds from subsequent new occupants/ investors. ?This strategy is the same for Social Security. ?
The success of the future of your U.S. Ponzi assumes that the dollar will maintain the status of world reserve currency holder. ?If our leaders keep piss---g off world leaders en masse, sooner or later, they will devise a mechanism to circumvent the dollar-based monetary system. ?Many of the strategies being followed by the current administration will cause the loss of world reserve currency holders.? No one would be willing to buy our worthless treasury securities. ?Seventy-five years of dollar dominance would come to a suicidal end, and deficit spending financed by the other sovereign nations would stop.
With inflation, each year arrives with the reality that everything costs more, or dramatically more, to the point where most of the population will struggle to keep up or become stressed out debt-surfs.? Middle-class income earners and those who rely on retirement benefits may need more ability to keep up with inflation.? Living standards could collapse to those of third-world countries with visions of impoverished masses struggling to meet basic human needs (access to food, water, and shelter).
Thank You,
Dan Harkey
Business & Private Money Finance Consultant
C? 949 533 8315?? e [email protected]
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Thanks for sharing this!