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“One only needs to reflect on the dramatic decline in the value of the dollar that has taken place since the Fed was established in 1913. The goods and services you could buy for $1.00 in 1913 now cost nearly $21.00. Another way to look at this is from the perspective of the purchasing power of the dollar itself. It has fallen to less than $0.05 of its 1913 value. We might say that the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy.” – Ron Paul – End the Fed
The BLS reported the CPI this morning. They tell me that inflation is well contained and has only risen by 1.2% in the past twelve months. Our beloved Federal Reserve chairman is worried inflation is too low. It is fascinating that the only people worried about inflation being too low are Ivy League educated economists and bankers whose wealth depends upon the middle class sinking further into poverty. As a person who lives in the real world, I can honestly say I like it when the things I need to buy cost less today than they did last year. When did inflation become a good thing for the average American? Our country was somehow able to grow from a fledgling new country to a world power in just over a century while experiencing mild deflation, except during times of war. The fallacy that inflation is beneficial to the common man has been peddled by bankers since 1971 when Nixon and his cronies closed the gold window and unleashed the inflationary boogeyman in the form of feckless politicians, captured Keynesian academics, and greedy soulless bankers.
It is no coincidence inflation accelerated the moment politicians, academics and bankers were unleashed to spend your money at will in order to obtain votes, Nobel prizes in economics, and ill-gotten obscene levels of wealth. David Stockman described Nixon’s dreadful sellout of the American people in his brilliant new book:
“Nixon’s estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.” –David Stockman – The Great Deformation: The Corruption of Capitalism in America
The USD has lost 83% of its purchasing power since 1971. The moment Nixon began playing politics with the USD and bullied the Federal Reserve Chairman into pumping up the money supply prior to the 1972 election, the inflation genie got out of the bottle and led to the miserable stagflation of the 1970′s. It took extreme measures by Paul Volcker to get it back under control in the early 1980′s. Since Volcker we’ve had nothing but academics and toadies who have chosen to change the definition of inflation in order to mislead the average American regarding how badly they are getting screwed. Every refinement, tweak, adjustment, or revision to the calculation of CPI has been designed to produce a lower figure. Why control inflation when you can just change the calculation to suit your purposes?
Over the proceeding decades, the BLS has sliced and diced the CPI in such a way that they can make it say whatever TPTB want it to say. They need to keep the mushrooms (you) in the dark regarding your standard of living deteriorating, while the beneficiaries of inflation (bankers, politicians) see their standard of living soaring. They have made hedonistic “adjustments”, quality “adjustments”, substitution “adjustments” and geometric weighting “adjustments”, all with the sole purpose to reduce the level reported to the American people on a monthly basis.
CPI was supposed to measure a common basket of goods and services that Americans needed to purchase in order to live their lives. If the price for this basket rose, you had inflation. If the price for this basket fell, you had deflation. The politicians, academics, bankers and government bureaucrats decided if the price of steak went up by 10%, you would switch to chicken, therefore the price of steak did not go up by 10%. They decided if the price of a new car went up 5%, but you now had heated seats, the price didn’t really go up 5%. They now want to change to a chained CPI, which will further depress the reported figure. CPI no longer represents the increase in price of goods and services you need to live your day to day life.
Even the composition of the index doesn’t match the true cost picture for the average American. Somehow they bury the energy component within multiple categories and have the gall to argue that energy costs only comprise 9.6% of the average American expense budget. Tell that to the suburban two worker family that drives 30,000 miles per year and has to heat and cool a 2,000 square foot home. I doubt that too many families only spend 7% of their money on medical care. Housing accounts for 41% of the CPI calculation, but it is again a made up calculation called owner’s equivalent rent. Only an Ivy League economist could explain the calculation. The fact that home prices have risen by 12%, rents have risen by 4% and mortgage rates have risen from 3.25% to 4.5% in the last year somehow results in a 2.4% annual rate of inflation for housing.
If you have the feeling your standard of living has been falling for the last few decades even though your owners tell you the economy is expanding, inflation is contained, unemployment is falling, the stock market is rising, and consumer spending is growing, then you might be smarter than a 5th grader. The financial elite ruling class are counting on the dreadful public education system, along with their mainstream corporate media propaganda arms, to keep the techno-distracted math challenged masses from understanding how the financialization of the country has resulted in their demise.
Being a skeptical sort, I decided to verify the accuracy of the CPI propaganda issued by the Bureau of Lies and Scams. The combination of the internet and memories from my youth provide a powerful and accurate assessment about the truthfulness of our government. I decided to create a chart of goods and services that average Americans have spent their hard earned wages on for decades. In a matter of minutes I was able to obtain prices from 1971 for various items common to most people. I was eight years old in 1971, being raised in a middle class one earner household on the salary of a truck driver. The chart below provides the proof the government CPI data is a bad joke and the American people are the butt of that joke.
|Average Price of New Car||$3,470||$31,252||800.6%|
|Average Price of New Home||$26,000||$245,800||845.4%|
|Gallon of Gasoline||$0.36||$3.50||872.2%|
|Loaf of Bread||$0.20||$2.20||1000.0%|
|Sirloin Steak per pound||$1.19||$7.00||488.2%|
|Box of cereal 12 oz||$0.36||$3.50||872.2%|
|Pack of Cigarettes||$0.32||$6.00||1775.0%|
|College Tuition – Private||$1,832||$30,094||1542.7%|
|Baseball ticket – Phila||$2||$23||1050.0%|
|Maximum Social Security Tax||$406||$8,950||2104.4%|
|Median Household Income||$9,028||$51,017||465.1%|
|Median wage per worker||$6,497||$27,519||323.6%|
|Average Hourly Earnings||$3.60||$20.31||464.2%|
|Consumer Credit Outstanding (tril.)||$0.14||$3.07||2092.9%|
|Mortgage Debt Outstanding (tril.)||$0.51||$13.18||2484.3%|
The BLS tells me the CPI has risen by 473% since 1971. The very same agency also tells me average hourly earnings have risen by 464% since 1971. This means the average worker is earning less than they did in 1971 in real terms. The median wage per worker has lagged CPI dramatically, as the averages have been skewed by those making outrageous compensation in the financial world. Median household income has barely kept pace with inflation even though households were forced to send both parents into the workforce, with the expected consequences of higher divorce rates and children left to fend for themselves or be raised by strangers.
By the government’s own measures, the average American’s standard of living has fallen since 1971. But, we also know the government has been manipulating the CPI figure lower since the mid-1980′s. After examining the true cost increases for housing, transportation, energy, food, education and entertainment, you would have to be brain dead or an Ivy League economist to believe inflation since 1971 has only been 473%. If home prices and car prices are 800% higher, while the energy needed to power and heat them are 900% to 1,000% higher, and the cost of food is 500% to 1,000% higher, how could the CPI only be 473% higher?
There are far more people going to college today than in 1971. With college tuition 1,500% higher, how can this not be reflected in the CPI? It certainly isn’t because the education is better. Statistics show the uneducated poor are more likely to smoke. Lucky for them, cigarette prices have risen at a rate of 4 times CPI due to the government taxing the crap out of them to fund their various taxpayer boondoggles. Inflation always hurts the poor and enriches the peddlers of debt.
My dad would take me to the brand new Veterans Stadium (built for $50 million in 1971) to see the Phillies in the early 1970′s. He paid $2.00 for a general admission seat and kids got in for 50 cents. We would buy a bag of soft pretzels outside the stadium and bring them into the park. We’d get a hot dog and soda for another $1. The entire outing to see a baseball game was about $5. Today, if I wanted to bring my family of five to a Phillies game at Citizen Bank Park (built for $458 million and paid for by the taxpayer) the lowest cost for the outing would be about $200. In 1971, you could spend a vacation week at the Jersey shore for $200. Now it gets you 3 hours of watching spoiled millionaires playing a child’s game while sitting with a bunch of foul mouthed drunks.
I also found it fascinating that the most regressive tax on earth, the Social Security tax, which hammers the poor and middle class while leaving the rich virtually unscathed has gone up by 2,100% since 1971. The rate in 1971 was 5.2% and the maximum salary level was $7,800. Today, the rate is 7.65% and the maximum level is $113,700. This increased cost for every middle class American is not factored into the inflation figures. Why would the government need to increase the maximum taxable wages by 1,500% when wages have gone up by less than 500%? The hard working truck driver bears the full impact, while Jamie Dimon not so much.
So now that I’ve proved beyond a shadow of a doubt the prices of everything we need to live have far outpaced our wages and the patently false drivel published by the BLS and parroted by the MSM, what are the implications? Well that is an easy one and is summed up by the last two entries in the chart. The average American has been lured into $16 trillion of debt over the last forty years in a pathetic attempt to keep up with the Joneses. Consumer credit (credit cards, auto loans, student loans) has gone up by 2,100% and mortgage debt has gone up by 2,500%. The American people have been sold a false lifestyle dream built on easy credit by evil bankers and Madison Avenue PR maggots.
There are those who would blame the people who have chosen to live far beyond their means. They have a point. The American people certainly haven’t shown a penchant for delayed gratification, saving for the future, or consuming less than they produce. But it takes two to tango and the lead in this dance of debt has been and continues to be the Federal Reserve and their Wall Street bank owners. It’s always reasonable to ask – Who benefits? – when trying to figure out why something has happened over time. Did the American people benefit by increasing the debt owed to Wall Street banks from $650 billion in 1971 to $16.25 trillion today? I don’t think so, based upon the visible deterioration I am witnessing in my suburban paradise.
The financialization of America; where Wall Street con artists,shysters and swindlers rake in billions for shuffling paper and making risky casino bets; mega-corporations ship blue collar middle class jobs to Asia in an all out effort to increase quarterly profits; politicians spend future generations into the poor house in order to get re-elected; and the Federal Reserve purposefully creates monetary inflation to prop up the corrupt system; has systematically destroyed the working middle class and created generations of debt slaves. The American people have been foolish, infantile, and easily duped. But it is clear to me who the real culprits in our long downward spiral have been. Lord Acton stated the obvious, many years ago:
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” ― John Emerich Edward Dalberg-Acton
The bankers have written the most integral rule that would reform their business practices and President Obama is showing his support.
Obama has released a written statement supporting the new Volcker Rule that will make “sure big banks can’t make risky bets with their customer’s deposits.”
Obama said: “Our financial system will be safer and the American people are more secure because we fought to include this protection in the law.”
Speaking about the crash of 2008, Obama admonished the banks for “fueling a punishing recession on Main Street that ultimately cost millions of jobs and hurt families across the country.”
As part of the economic repair of our country, the president said that financial “rules that reward sound financial practices allow honest innovation and strengthen the financial system’s ability to support job creation and durable economic growth.”
Obama said that the Volcker Rule will make “it illegal for firms to use government-insured money to make speculative bets that threaten the entire financial system, and demand a new era of accountability from CEOs who must sign off on their firm’s practices.”
This new rule will ensure that ‘our financial system will be safer.”
Experts say that the new Volcker Rule glosses over the fact that it was “trading mishaps” that were the “root cause of the financial crisis.”
Because of this, “the rule doesn’t go far enough . . . prohibition [will] draw a line, making it clear that banks’ business is about lending not investing.”
The Volcker Rule, within the Dodd-Frank law, is now being used by the president as a public relations ploy to give Americans a semblance ofgovernment oversight and the reining in of “risk taking after the financial crisis.”
The new Volcker Rule was created by the banks and is “the rule that the banks wanted.”
The 2011 draft of the Volcker Rule was leaked by the American Banker Association (ABA).
Rob Tooney, associate general counsel at the Financial Securities Industry and Financial Markets Association (FSIFMA) said : “Our concern is that whatever the final rule is that it doesn’t harm the markets’ overall liquidity. The short answer is we don’t know yet.”
The new rule was reported “far more restrictive than previously expected” and now that the banks have taken over the writing of the document, they feel more comfortable in supporting its passage.
Ben Bernanke, chairman of the Federal Reserve Bank (FRB) said at a central bank meeting this week: “Getting to this vote has taken longer than we would have liked, but five agencies have had to work together to grapple with a large number of difficult issues and respond to extensive public comments.”
In 2010, Alan Blinder, economist of Princeton stated of the burgeoning Dodd-Frank law in an op-ed piece : “It is devilishly difficult to draw bright lines between proprietary trading and trading, hedging, and market-making on behalf of clients.”
Paul Volcker said he was “disappointed with how the rule was turning out” and that he “didn’t expect the proposal to be diluted so much, said a person with knowledge of his views. He’s content with language that bans banks from trading with their own capital, the person said.”
The Dodd-Frank Law was signed that same year.
Volcker contended that the rule should have “clear concise definitions, firmly worded prohibitions, and specificity in describing the permissible activities will be of prime importance for the regulators as they implement and enforce this law.”
In 2011, Senator Carl Levin co-sponsored the Volcker Rule and spoke toCongress about the importance of the regulation: “The Volcker Rule is essential to protect taxpayers from banks’ excessive financial risk-taking, conflicts of interest, and from the resulting billion-dollar bailouts. I look forward to reviewing the proposed rule and hope the regulators reject efforts to weaken the law.”
In early 2012, Jamie Dimon, chief executive of JP Morgan Chase & Co, brazenly told media : “If you want to be trading, you have to have a lawyer and a psychiatrist sitting next to you determining what was your intent every time you did something.”
In another interview, Dimon said of Volcker: “Paul Volcker, by his own admission, has said he doesn’t understand capital markets. Honestly, he has proven that to me.”
Lawrence Fink, chief executive of BlackRock commented : “We are not in support of it. We sent the letter as a firm. It’s very hard for me to understand how to navigate the Volcker Rule. What is proprietary trading? What is flow trading? It’s going to be very definitional.”
Volcker responded to critics, saying: “A lot of the criticism is over the complexity of the thing and, essentially it’s down to a lot of details. But the basic rule, of course, is incorporated in the law. And I think when you get all finished with this Sturm und Drang in the Congress now, I think you’re going to have a reasonable interpretation of a law and an interpretation that can be reasonably followed by the banks and enforced by the regulators.”
This past summer, Jacob Lew, secretary of the US Treasury, warned of a year’s end deadline on the Volcker Rule.
Lew said: “I want to mention that the Volcker Rule is particularly important, and I will continue to push for swift completion of a rule that keeps faith with the intent of the statute and the president’s vision.”
What A Confidential 1974 Memo To Paul Volcker Reveals About America’s True Views On Gold, Reserve Currency And “PetroGold” | Zero Hedge
Just over four years ago, we highlighted a recently declassified top secret 1968 telegram to the Secretary of State from the American Embassy in Paris, in which the big picture thinking behind the creation of the IMF’s Special Drawing Right (rolled out shortly thereafter in 1969), or SDRs, was laid out. In that memo it was revealed that despite what some may think, the fundamental driver behind the promotion of a supranational reserve paper currency had one goal in mind: allowing the US to “remain masters of gold.”
Specifically, this is among the top secret paragraphs said on a cold night in March 1968:
If we want to have a chance to remain the masters of gold an international agreement on the rules of the game as outlined above seems to be a matter of urgency. We would fool ourselves in thinking that we have time enough to wait and see how the S.D.R.’s will develop. In fact, the challenge really seems to be to achieve by international agreement within a very short period of time what otherwise could only have been the outcome of a gradual development of many years.
This then puts into question just what the true purpose of the IMF is. Because while its stated role of preserving the stability in developing, and increasingly more so, developed, countries is a noble one, what appears to have been the real motive behind the monetary fund’s creation, was to promote and encourage the development of a substitute reserve currency, the SDR, and to ultimately use it as the de facto buffer and intermediary, for conversion of all the outstanding “barbarous relic” hard currency, namely gold, into the fiat of the future: the soon to be newly created SDR. All the while, and increasingly more so as more countries converted their gold into SDR, such remaining hard currency would be almost exclusively under the control of the United States.
Well, in the intervening 44 years, the SDR never managed to take off, the reason being that the dollar’s reserve currency status was exponentially cemented courtesy of both the great moderation of the 1980s and the derivative explosion of the 1990s and post Glass Steagall repeal 2000s, when the world was literally flooded with roughly $1 quadrillion in USD-denominated derivatives, inextricably tying the fate of the world to that of the dollar.
However, back in 1974, shortly after Nixon ended the Bretton Woods system, and cemented the dollar’s fate as a fiat currency, no longer convertible into gold, the future of the SDR was still bright, especially at a time when the US seemed set to suffer a very unpleasant date with inflationary reality following the 1973 oil crisis, leading to a potential loss of faith in the US dollar.
Which brings us to the topic of today’s article: the international monetary system, reserve currency status, SDRs, and, of course, gold… again.
Below is a memo written in 1974 by Sidney Weintraub, Deputy Assistant Secretary of State for International Finance and Development, to Paul Volcker, when he was still just Under Secretary of the Treasury for Monetary Affairs and not yet head of the Federal Reserve. The source of the memo was found in the National Archives, RG 56, Office of the Under Secretary of the Treasury, Files of Under Secretary Volcker, 1969–1974, Accession 56–79–15, Box 1, Gold—8/15/71–2/9/72. No classification marking. A stamped notation on the note reads: “Noted by Mr. Volcker.” Another notation, dated March 8, indicates that copies were sent to Bennett and Cross. It currently resides in declassified form in Document 61, Foreign Relations Of The United States, 1973–1976, Volume XXXI Foreign Economic Policy, and is found at theOffice of the Historian website.
The memo is a continuation of the US thinking on the issue of the then brand new SDR, the fate of paper currencies, and the preservation of US control over reserve currency status. Most importantly, it addresses several approaches to dominating gold as well as the US’ interest of banning gold from monetary system and capping the free market price, contrasted by the opposing demands of various European deficit countries (sound familiar?) on what the fate of gold should be at a time when the common European currency did not exist, and some European countries were willing to fund their deficits with gold: something the US naturally was not happy about.
While we urge readers to read the full memo on their own, here the two punchlines.
First, here is what the S intentions vis-a-vis gold truly are when stripped away of all rhetoric:
U.S. objectives for world monetary system—a durable, stable system, with the SDR [ZH: or USD] as a strong reserve asset at its center —are incompatible with a continued important role for gold as a reserve asset.… It is the U.S. concern that any substantial increase now in the price at which official gold transactions are made would strengthen the position of gold in the system, and cripple the SDR [ZH: or USD].
In other words: gold can not be allowed to dominated a “durable, stable system”, and a rising gold price would cripple the reserve currency du jour: well known by most, but always better to see it admitted in official Top Secret correspondence.
To encourage and facilitate the eventual demonetization of gold, our position is to keep the present gold price, maintain the present Bretton Woods agreement ban against official gold purchases at above the official price and encourage the gradual disposition of monetary gold through sales in the private market. An alternative route to demonetization could involve a substitution of SDRs for gold with the IMF, with the latter selling the gold gradually on the private market, and allocating the profits on such sales either to the original gold holders, or by other agreement…. Any redefinition of the role of gold must be based on the principle stated above: that SDR must become the center of the system and that there can be no question of introducing a new form of gold– paper and gold–metal bimetallism, in which the SDR and gold would be in competition.
And there, in three sentences, you have all the deep thinking behind the IMF’s SDR: simply to use it as a vehicle through which a select few can accumulate gold (namely those who can create fiat SDRs d novo), while handing out paper “profits” to the happy sellers.
And just in case it was not quite clear, here it is again, point blank:
Option 3: Complete short-term demonetization of gold through an IMF substitution facility.Countries could give up their gold holdings to the IMF in exchange for SDRs. The gold could then be sold gradually, over time, by the IMF to the private market. Profits from the gold sales could be distributed in part to the original holders of the gold, allowing them to realize at least part of the capital gains, while part of the profits could be utilized for other purposes, such as aid to LDCs. Advantages: This would achieve our goal of demonetization and relieve the problem of gold immobility, since the SDRs received in exchange could be used for settlement with no fear of foregoing capital gains. Disadvantages: This might be a more rapid demonetization than several countries would accept. There would be no benefit from the viewpoint of financing oil imports with gold sales to Arabs (although it is not necessarily incompatible with such an arrangement).
One wonders just who in the “private market” would be stupid enough to convert their invaluable paper money into worthless, barbaric relics?
And finally, was there the tiniest hint of a proposed alternative system to the PetroDollar. Namely, PetroGold?
There is a belief among certain Europeans that a higher price of gold for settlement purposes would facilitate financing of oil imports… Although mobilization of gold for intra-EC settlement would help in the financing of imbalances among EC countries, it would not, of itself, provide resources for the financing of the anticipated deficit with the oil producers. For this purpose, it would be useful if the oil producers would invest some of their excess revenues in gold purchases from deficit EC countries at close to a market price. This would be an attractive proposal for European countries, and for the U.S., in that it would not involve future interest burdens and would avoid immediate problems arising from increased Arab ownership of European and American industry. (The Arabs could both sell the gold and use the proceeds for direct investment, so that the industry ownership problem would not be completely solved.) From the Arab point of view such an asset would have the advantages of being protected from exchange-rate changes and inflation, and subject to absolute national control.
One wonders if the price of gold is “high enough” now for Arab purposes, and just where the Arabs are now in their thinking of converting oil into gold… or alternatively into a gold-backed renminbi. And if not now, soon, once the pent up inflation in the Fed’s $4 trillion, and rising, balance sheet inevitably start to leak out?
The full Volcker memo can be found here.
h/t Koos Jansen
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government – that is, the warfare state, the welfare state and the central bank… What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut… He calls this condition “Sundown in America”.
SUNDOWN IN AMERICA: THE KEYNESIAN STATE-WRECK AHEAD
Remarks of David A. Stockman at the Edmond J. Safra Center for Ethics, Harvard University, September 26, 2013
The median U.S. household income in 2012 was $51,000, but that’s nothing to crow about. That same figure was first reached way back in 1989— meaning that the living standard of Main Street America has gone nowhere for the last quarter century. Since there was no prior span in U.S. history when real household incomes remained dead-in-the-water for 25 years, it cannot be gainsaid that the great American prosperity machine has stalled out….
- David Stockman – The Crisis Today Is Far Worse Than 1981- This Financial Collapse Will Be Catastrophic (planet.infowars.com)
- David Stockman: Extended Stay And The Wall Street Meth Labs (testosteronepit.com)
- ZeroHedge: David Stockman Fears Intense Resentment Over “Disaster” That Is Obamacare (silveristhenew.com)
- Monetary Policy and Inflation (prepforum.wordpress.com)
- Monetary inflation prospects (cobdencentre.org)
- Alasdair Macleod: Monetary inflation prospects (gata.org)
- The subtle Cantillon effects of inflation (abolishthebank.wordpress.com)
- Volcker: Fed will ‘fall short’ (money.cnn.com)
- Volcker Cautions Federal Reserve May ‘Fall Short’ – Bloomberg (bloomberg.com)
- Volcker warns on limits of U.S. easy money (theglobeandmail.com)
- Volcker Sets Up Center to Examine Trust in Government – Bloomberg (bloomberg.com)
- Volcker: Fed should focus on containing inflation (usatoday.com)
- Eric: Volcker: Government Makes Up 35% Of GDP, Mortgage Markets Are Now A State ‘Subsidiary’ – Forbes (forbes.com)
- Former Fed Chairman Volcker Wants to Rebuild Public’s Faith in Government (wnyc.org)