In Basel, Switzerland, in a cylindrical building overlooking the Rhine, the gnomes of world finance meet every two weeks. Over dinner in their 18th floor hideout, they talk freely without any staffers of their terrible dilemma. Since 2007, these heads of the world’s biggest central banks have “flooded the world’s financial system with more than $11 trillion” in credit.
The problem: It’s not enough. These lenders “plan to pump billions more into government bonds, mortgages and business loans,” the Wall Street Journal reports, in an attempt to borrow the world out of a mountain of stagnant debt that hangs across the global economy like a sodden blanket. It’s called “monetary activism.”
The men at Panera Posse, our Friday morning coffee gang, paid mind today to the significance of these developments that affect every soul who uses the Americans’ paper dollar. Jedd Davis, 14, sits with a drink next to his dad, Chris, a quiet-spoken traffic engineer. When pressed to answer a question, Jedd sometimes demurs. “Well, sir,” and his cap bill bounces slightly, “I haven’t thought about that. Maybe you could inform me.”
The Chattanooga commoners are peeking into the councils of the global mighty. With a little effort, are able to see straightly through the wavy glass that is the official narrative of such central bank gatherings. The two-day-old newspaper, lying amid our plates and paper cups. We grasp and unfold it. We talk about the “big bets” the banking machine is making against us.
Official story in the newspaper
An annoying trick of official media is to make inflation theoretical, prospective, something always ahead.
We are told the giant credit dumping operation that will affect Jedd Davis’ future “could kindle inflation or sow the seeds of another financial crisis.” Now that banks have flooded the world with cheap credit, will they draw the excess back “to forestall inflation,” as the report puts it? Inflation seems not to exist already, though the Journal on Friday’s Page 1 published a graphic tracking official inflation at 2 percent. “When opened, the flow of new cash heats up economies, driving down interest rates and unemployment but risking inflation[.]” Meanwhile, fed officials talked quickly “as other central bankers raised worries the program would cause inflation or spark an unwanted flood of capital into their markets.” Blah blah blah.
Inflation is a “monetary phenomenon,” says a local investment adviser you’ll meet next week. He’s right. Inflation is not just rising prices. Prices are merely a result of controlling factors such as monetary expansion. Inflation is the increase in units of a currency through the lending or credit creation process. So a single dollar created by the lending process from nothing is inflation. That first dollar is the creation of a moral problem: Currency debasement.
The Wall Street Journal story Wednesday is enough a kafooster to pass of the editors, who would block plainspoken writing as editorializing. Despite is malformation, the reportage refuses to let the Basel drones work in the obscurity of that high rise flat. Thanks to its insight, we understand something of the hydraulics of modern money mechanics.
Isn’t creating more money good for me?
In the providence of God we live in confederation of states that, after a war to prevent Southern independence, became a unitary state. Its central bank, the Federal Reserve System, effectively owns the national economy and imposes a national economy on my local economy and yours.
That bank’s manipulation of the Federal Reserve Note, in paper or electronic form, is useful in creating boom and bust cycles. These violent phases are built into the system. To stimulate profligate borrowing and spending, the Fed has kept its interest rate at nearly zero, giving the appearance that no day of reckoning is ahead.
The commoners at the breakfast table today established that inflation destroys the buying power of the green rectangles folded into their billfolds. A 2 percent inflation means F$1 a year from now buys what 98 cents today buys. Mr. Davis’ F$1 piggybank bill is worth 98 pennies if he holds it 365 days. Real inflation is much higher, I suspect. A 10 percent inflation slashes Jedd’s buying power in half in a little over six years. It so happens he depleted his savings the other day, quitting U.S. dollars for a pair of shoes. In a month, apart from Christmas money, he’ll have F$20, his monthly stipend for chores.
Because paperish money is a godly judgment against Americans and Western welfare democracies, I see no legal recourse to remedy the wrong imposed on hapless and ignorant U.S. persons such as Jedd Davis, or even myself, a citizen of Tennessee. The Fed’s legal defense against claims it is a racketeering enterprise committing fraud is that its actions are sanctioned by its origins in the amended U.S. constitution and that its actions are public policy.
Still, legal terms describing fraud are truly beautiful, and if you think legal definitions are boring, let’s hear an authority. Granted, fraud is an elusive and shadowy term. But a fraud is “anything calculated to deceive, whether it is a single act or a combination of circumstances.” It is “obtaining of an unfair advantage by means of some act or omission that is unconscientious or a violation of good faith.”
‘Intentional perversion *** deceit, trick’
Our Basel friends proffer to Mr. Davis “an artifice by which a person is deceived to his or her hurt.” An elastic means of exchange is, I would suggest, “an intentional perversion or concealment of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing or to surrender a legal right.” The poor worker, the elderly retiree weeping in her kitchen over her ruined estate, the single mom struggling with her last grocery bag at her front door, by being subject to legal tender laws, suffer “a misrepresentation or suppression of the truth” made by one party for the “loss or inconvenience of the other.”
Ben Bernanke and his Basel pals have high hopes for the program of inflation. Chattanoogans are being cheated without recourse to a monetary “deceit, trick, or artifice.” It exists without evil intent or bad faith on their part, as far as we know, so the fraud is probably constructive rather than intentional.‡ When the big tide of credit and inflation rush against local economy in my hometown and yours, we’ll have to keep our hats on, and hope Jedd has put his capital maybe into a some jeans or a bit of gold.
‡ Constructive fraud “arises by operation of law from a course of conduct which, if sanctioned by law, would secure unconscionable advantage, irrespective of the existence or evidence of actual intent to defraud.” American Jurisprudence.
Sources: “Inside the Risky Bets of Central Banks,” Jon Hilsenrath and Brian Blackstone, The Wall Street Journal, Dec. 12, 2012
“Fraud and Deceit,” American Jurisprudence (Westgroup, 2001)