The Binary Circumstance

From Yahoo News/AP:

The Labor Department reported Tuesday that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy and a variety of other products from motor vehicles to plastic goods.

The increase was more than twice the 0.5 percent gain that economists expected and left prices rising over the past 12 months by 9.8 percent. That marked the biggest annual increase since the 12 months ending in June 1981, a period when the Federal Reserve was driving interest rates to the highest levels since the Civil War in an effort to combat a decade-long bout of inflation.

I remember those double-digit interest rates from the early 80’s. It was not fun.

The U.S. government has a technology, called a printing press, that allows it to produce as many U.S. dollars as it wishes at essentially no cost. — Ben Bernanke, Chairman of the Federal Reserve

Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money. — Daniel Webster

Source: The Demise of the Dollar by Addison Wiggin. New Jersey, John Wiley & Sons, Inc. 2008, pg. 81.

To see just how much Ben Bernanke has been using that printing press, see my previous post.

On many occasions I have warned that the government’s monetary policies would lead to more inflation, a hidden tax that destroys the value of savings and harms the poor and those on fixed incomes the most.

Type “inflation” into the search box and you can see the many references that I’ve made to it in the past.

Today comes the news that inflation is at a 17-year high.

When you look at all the new money that the Federal Reserve and other banks have created out of thin air to bail-out big financial interests it is absolutely shocking. It appears from the chart that the Fed has created more money in the past few months than they have created in their entire history.

Creating new money that is not backed by anything, commonly known as counterfeiting except when the government does it, cheapens the value of money already in circulation. Whenever a bank, including the Federal Reserve, makes a loan they are making new money from nothing. As the money in circulation is devalued, the value of real assets goes up in relation to the paper money. To consumers that looks like prices going up. It is also the value of their money going down. That is a direct result of the relentless creation of new money out of thin air by the Federal Reserve and other banks.

(Click on the link above to see the full-sized chart.)

As for inflation, I can only say you ain’t seen nothin’ yet.

As expected, President Bush signed the “housing” bill which is really a huge bailout for banks, Fannie Mae and Freddie Mac.

WASHINGTON (AP) — President Bush on Wednesday signed a massive housing bill intended to provide mortgage relief for 400,000 struggling homeowners and stabilize financial markets.

Bush signed the bill without any fanfare or signing ceremony, affixing his signature to the measure he once threatened to veto, in the Oval Office in the early morning hours. He was surrounded by top administration officials, including Treasury Secretary Henry Paulson and Housing Secretary Steve Preston.

Guess he didn’t want any TV news coverage of that event.

Democrats used the law to take advantage of a chance to increase the ceiling on the national debt.

Democratic leaders, recognizing that the measure could be one of the last items to become law during what’s left of their abbreviated election-year schedule, tacked on an $800 billion increase, to $10.6 trillion, in the statutory limit on the national debt.

Conservative Republicans were vehemently opposed to the bill, particularly the help for Fannie Mae and Freddie Mac. Critics charge the companies enjoy lavish profits in good times and wield their outsized political clout to resist regulation while depending on the government to bail them out should they falter.