Everyone loves the idea of a free lunch. The dishes seem to taste better, the aroma is more inviting, and most importantly, we leave feeling completely satisfied. However, one must remember: a truly free lunch doesn’t exist.
Once upon a time, naïve to the complexities of life, we thought we had experienced one. A superior took us out for lunch, graciously covering the bill. It wasn’t long before we realized that this goodwill came with strings attached, as we found ourselves working extra hours in the following weeks.
WWI Brigadier General Leonard P. Ayres aptly stated, “there is no such thing as a free lunch,” a sentiment that resonates to this day. This principle is as fundamental as the laws of gravity or the golden rule; it stands unchallenged.
Fred Brooks, who revolutionized the IBM 360 series, added depth to this idea: “You can only get something for nothing if you have previously gotten nothing for something.”
When one group receives a benefit without cost, it invariably means that another group bears the financial burden. This phenomenon illustrates why programs like Obamacare are inherently flawed, as younger, healthier citizens essentially subsidize the older, less active demographic.
From the Source Itself
Such entitlement programs are predestined to fail due to this undeniable truth. Despite this, policymakers continue to promise them.
This week, officials at the Federal Reserve proclaimed their intention to continue offering something for nothing, albeit not as generously as before. Hear it directly from the source…
“Starting in January, the Committee will reduce its agency mortgage-backed security purchases from $40 billion to $35 billion per month, and its long-term Treasury securities purchases from $45 billion to $40 billion per month.”
“The Committee’s substantial and ongoing accumulation of long-term securities should maintain downward pressure on interest rates, support the mortgage markets, and foster an accommodating financial climate to bolster economic recovery while keeping inflation aligned with the Committee’s dual mandate.”
“The Committee also reaffirmed that the current exceptionally low federal funds rate range of 0 to 0.25 percent is expected to be appropriate as long as unemployment remains above 6.5 percent and inflation projections are held in check.”
The Illusion of Free Benefits
Are you frustrated by this manipulation? Do you feel deceived?
The gradual reduction in asset purchases, from $85 billion to $75 billion monthly, is comparable to a smoker cutting back from 40 to 35 cigarettes a day; little more than a gesture. Just like the habitual smoker, the Federal Reserve appears set on a self-destructive path.
Not long ago, maintaining a federal funds rate near zero was considered an extreme measure. Now, it seems poised to become the norm for an extended period, introducing its own set of challenges.
As a direct result of its aggressive asset purchasing, the Federal Reserve has inflated its balance sheet to an astonishing $4 trillion, conjured into existence from thin air. This is a glaring example of creating something from nothing.
Even with the tapering of purchases, the Fed is still generating money at a staggering rate of $900 billion annually. Who ultimately bears the cost for this?
According to the principle of the no-free-lunch axiom, we will inevitably receive nothing for something to balance out the Fed’s actions. This means that the repercussions will fall on everyone.
We will pay through our labor, our skills, and even our well-being, leading to a declining quality of life. Regardless of our savings efforts, they may never suffice for our future needs.
The consequences will ripple outwards, affecting various sectors. For instance, a spike in food prices in northern Africa might spark another coup. In China, wage inflation could disrupt its economic growth, leading to civil unrest. In the U.S., a significant depreciation of the dollar could unravel the economy.
Attempting to attain something for nothing often leads to severe repercussions. In the pursuit of these elusive gains, we may end up paying far more than we bargained for.
Sincerely,
MN Gordon
for Economic Prism
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