More Inflation Fears

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Inflation
fears are heating up this week as Fed Chairman Ben Bernanke gave
a speech in Boston on Friday, causing further frantic flight into
gold by those fearful of the coming “quantitative easing”
the Fed is set to deliver in November. Others who view gold as a
short-term investment engaged in immediate profit-taking after Bernanke’s
speech.

Gold is more
correctly viewed as insurance against bad monetary policy decisions
that erode the value of savings. Those bad decisions keep coming
at an ever faster clip these days and we hear more and more talk
of currency wars especially between the dollar, the Chinese yuan,
the Japanese yen, the Australian dollar, and the Euro. As the economies
of the world continue to stagnate or contract, monetary policy decisions
become more relevant to people who once thought this topic arcane.
We have several examples this week of major fumbles on the part
of the US Central Bank:

  • The Federal
    Reserve continues to insist that inflation is too low, even while
    the monetary base remains at record levels, and food and gas prices
    continue to climb.

  • As the Fed
    continues to drive down the value of the dollar, the government
    accuses China of deliberately devaluing its currency, and the
    House has passed legislation aimed at punishing China for this
    alleged devaluation.
  • Low returns
    on US bonds are driving investors into higher-performing foreign
    bonds. Some of these countries are responding by reinstituting
    capital controls to guard against hot money and the carry trade.
  • The spat
    with China and reemergence of capital controls have led some to
    fear that we are in the first stages of an all-out currency war.
  • The instability
    in the international monetary system, the decreasing value of
    the dollar, and the large amounts of new US debt could lead the
    IMF and countries such as China, Japan, Russia, India, and Brazil
    to abandon the dollar and adopt a new multinational currency.

While the big
players in these currency games sort everything out, the people
hurt the most are the savers, the workers, and those on fixed incomes
as their money buys less and less. Make no mistake — the Fed
and the Treasury Department are playing games with our money, especially
in how they report statistics like unemployment and inflation. These
games erode our standard of living and hide just how much damage
their inflationary policies are doing.

Official core
inflation for the US is only 1.14%, but that excludes such crucial
day-to-day goods as food and energy. Real inflation certainly is
higher, maybe much higher. John Williams of Shadow Government Statistics
calculates true inflation at a whopping 8.48%! But manipulated inflation
statistics give the government cover when they again deny seniors
a cost-of-living increase in their social security checks. They
also serve to convince the public that further expansion of the
money supply will boost the economy without causing any real pain,
which has essentially been the core argument of Greenspan-Bernanke
fed policy for the last 20 years.

Of course,
the United States is not alone in its disastrous monetary policy
decisions. These pressures are inherent in any fiat monetary system
where money is created at will, for the benefit of the special interests.
As all these currencies race to the bottom of the inflationary barrel,
the only security to be had will be in honest money like gold as
the system falls apart. My hope is that we can return to the wisdom
of the Constitution and get back to sound, commodity-backed money
before our dollar suffers a wholesale collapse.

See
the Ron Paul File

October
26, 2010

Dr. Ron
Paul is a Republican member of Congress from Texas.

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