The latest headlines suggest an optimistic outlook, especially with the Commerce Department announcing a 0.5 percent rise in consumer spending for November—marking the seventh consecutive monthly increase. This is significant for the U.S. economy.
Why does this matter? Consumer spending constitutes approximately 71 percent of the U.S. economy. An uptick in consumer spending typically signals a boost in economic growth.
This appears to be occurring, as indicated by the latest estimates from the Commerce Department, which report a GDP increase at an annual rate of 4.1 percent for the third quarter—the highest growth rate in almost two years.
The economic cheerleaders are in high spirits, with Christine Lagarde, Managing Director of the International Monetary Fund, stating that the IMF would be raising its growth forecast for the U.S. economy in 2014.
“We see a lot more certainty for 2014,” said Lagarde. “That gives us a much stronger outlook for 2014, which prompts us to raise our forecast.”
However, no one seems to be asking where consumers are finding the funds to sustain this spending. The labor participation rate is at its lowest in over 35 years. If people aren’t earning income, they must be borrowing to finance their consumption. This suggests that rising consumer spending could indicate an alarming trend of increasing debt.
Inflating Away Federal Pay Raises
Wall Street, however, has overlooked these concerns, celebrating the news with fervor. Traders made every effort to drive the stock market to new highs just in time for the holiday season. “Stocks end on a high note before Christmas,” read one headline. The jolliness continued with another record close yesterday.
As if things couldn’t get any better, President Obama, taking a break from his Hawaiian vacation, announced some additional good news.
“President Barack Obama signed an executive order on Monday – during his Hawaiian getaway – to set civilian and military pay rates for the upcoming year.
The measure allows government civilian employees to receive their first pay raise in four years… A 1 percent pay increase in 2014 has been established for both military and civilian employees, in line with the president’s earlier proposal.”
Sadly, for federal workers, even with a modest Cost of Living Index of 1.2 percent, this pay increase has already been effectively nullified by inflation. Moreover, during the past four years of salary freezes, the dollar has lost 8 percent of its value. While the issue of federal salaries may seem trivial, the devaluation of the dollar is something we must take seriously.
Twenty-four hours of news coverage provides no comfort; this is the result of Federal Reserve policies targeting a 2 percent annual inflation rate, all in the name of prudent monetary management.
Travesty of a Free Society
Speaking of the Federal Reserve, December 23 marked its 100th anniversary. It’s astounding that the Federal Reserve has persevered for an entire century, and its very inception is a stark contradiction of what a free society should embody.
The Federal Reserve was established with the Federal Reserve Act, which passed Congress on December 23, 1913—mere days before Christmas. This Act created the United States’ central bank and granted it the authority to issue Federal Reserve Notes.
Congressman Charles August Lindbergh Sr., father of aviation pioneer Charles Lindbergh, vehemently opposed the Act, warning that it would lead to a colossal money trust and manipulate inflation, igniting market turmoil.
Regrettably, Lindbergh’s foresight has been validated numerous times, particularly with the Federal Reserve’s multi-billion-dollar bank bailout during 2008-09, which followed an era of rampant asset inflation. More concerning is the Federal Reserve’s role in perpetuating a cycle of debt that many face for life.
Since the inception of the Federal Reserve, inflation has become a constant challenge. According to the Bureau of Labor Statistics’ inflation calculator, the dollar has lost 96 percent of its value since 1913—the year of the Fed’s creation.
The Fed’s ongoing process of inflation concentrates wealth among the elite while undermining workers and savers. This trend remains strong, with Fed interventions in the economy and financial markets at unprecedented levels.
Under Ben Bernanke’s stewardship, the Fed drove real interest rates below zero and expanded the money supply by over $3 trillion. This allowed the wealthy to borrow at little to no cost and make substantial investments in inflated asset prices. Why wouldn’t they take advantage?
The Federal Reserve has structured the system to favor the affluent. They know that when asset prices plummet—as they did in 2008-09—the Fed will absorb the losses through more inflation. In contrast, workers and savers bear the brunt as their earnings, savings, and living standards shrink.
In summary, the Federal Reserve is a blemish on the ideals of a free society. It always has been. True freedom, including free markets, cannot exist alongside the Federal Reserve or any other central bank. By controlling money supply, they influence the pricing of everything.
It is not merely the manipulation of currency that troubles us; it is the implications of what money represents—specifically, the time and effort invested to earn it.
Consider the countless days you’d have preferred to spend with family instead of slaving away for a paycheck. Reflect on all the time you spent on the road, frustrated by challenging clients while your children grew up. Remember the sunny afternoons lost to office work.
All for what? Only for the meager remainder of your earnings to be eroded away due to inflation after taxes?
The reality is that when the Federal Reserve devalues your money, they don’t just take your money; they rob you of your life. We find this situation wholly unacceptable.
Sincerely,
MN Gordon
for Economic Prism
