A current video shows penguins at a Japanese aquarium rejecting the cheap fish the aquarium has substituted for the higher quality fish the penguins are accustomed to receiving. The reason the aquarium switched fish is because rampant inflation has made it extremely hard for the aquarium to afford the greater quality fish. The penguins’ reaction illustrates the flaw in governments claiming that even if inflation makes it impossible for you (or penguins) to eat steak (or higher quality fish) your quality of life has not been diminished so long as you can afford hamburger (or cheap fish).
Minimizing the particular impact of inflation if you take a “ let the penguins eat lousy fish” approach is the basis of the “ chained CPI” that is a great way the government underestimates price inflation. According to John Williams associated with Shadow Government Statistics, the real inflation rate (calculated with no government’s “ modifications” ) is over 15 percent! While they continue to understate the true rate of price pumpiing, government officials have been forced to admit at least that price inflation has reached levels not seen in forty yrs.
This has led the Federal Reserve to boost interest rates. But , so far, the particular Fed’s rate increases have not stopped price inflation. Because of this , the Fed’s next rate increase may be a rare complete percentage point increase. Yet, even if the Fed raises rates by a full percentage point, rates will still remain well below what they would be in a free market. The particular Fed cannot raise prices anywhere close to market rates because doing so would make it impossible for debt-ridden customers, businesses, and the federal government to handle their debt.
Fear of causing the bursting of the numerous bubbles it has created — especially the federal government debt bubble — means the Fed’s efforts to halt price pumpiing will fail. However , the particular Fed’s actions will increase unemployment and obstruct economic development. This will lead to, if it hasn’t already, a return to the 1970s phenomenon of “ stagflation, ” although this time it can be even more painful.
The problem with the Federal Reserve is not that it pursues “ bad policies. ” The thing is the very existence of a secretive and unaccountable central bank with the power to manipulate the money supply and interest rates. Money’s function is to provide an objective unit of account, so market actors know the value of goods and services. When the central bank manipulates the money supply, it arbitrarily changes the value of money, making it impossible for marketplace actors to determine those beliefs. The Fed’s manipulation of interest rates also creates financial chaos by distorting the signals sent regarding financial conditions. This leads to widespread malinvestments, resulting in booms followed by busts. Since this system leaves elements of the market intact, it can survive and even appear to thrive for an extended period of time. But eventually the fiat money system will collapse.
Since the fundamental flaw with all the Federal Reserve is the very existence, reforms, for example making the Fed follow a rules-based policy, will not “ fix the Fed. ” The only way to return to a logical economic system is to end the Fed. If there is not sufficient support to end the Fed, Congress should still review the Fed and create competitors by repealing the lawful tender laws and ending all capital gains fees on precious metals and cryptocurrencies.
This short article first appeared at RonPaulInstitute. org.