The Donohue Company

”If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered . ”

— President Thomas Jefferson

An oft-heard aphorism is that if you find yourself in a deep hole, the first thing to do is to stop digging . Chairman Bernanke may be beginning to get the message, but we seriously doubt it .

The basic, underlying problem with the U . S . economy is not a shortage of credit but rather an overabundance of credit resulting in excessive personal debt, excessive municipal debt, excessive federal debt, excessive housing debt, excessive credit card debt etc . etc An entire generation has come to believe that almost anything can be purchased on credit and paid for sometime in the distant future . Perhaps the worst offender is the U . S . Congress which finds no difficulty in authorizing, for example, a “rebate” of $160B to the American taxpayer . No one, no one mind you, asks where the money is coming from . But we know that the money will come from the printing presses of the U . S . Treasury . Mr . Bernanke’s Keynesian solution is to put additional cash in the hands of the consumer who can be depended on to spend nearly all for consumer purchases and thereby stimulate the economy . But this time around the consumer, knee-deep in debt, facing higher food costs and $4 . 00 gasoline, is much more likely to use the cash to pay down debt, which will leave the United States with little or no economic stimulus albeit deeper in debt .

Add to this the very significant dollars which the Fed continues to put into circulation in order to stimulate the economy . At last count, the Fed has overtly added more than $160B to the money supply by creation of the Treasury Auction Facility, The TAF makes loans available to banks at very low interest rates . Historically, banks which were short required reserves could borrow from the Fed’s Discount Window . But banks have always been reluctant to do this since it carried a certain stigma regarding the bank’s ability to manage its business . Now, through the TAF, the Fed puts money into circulation at low borrowing rates while accepting a wide variety of collateral, including mortgages . If the amount of unborrowed reserves now held by banks is totaled, we find that U . S . banks are lacking more than $20B in reserve requirements . In prior years, this would be cause for the closure of the bank .

We say overtly because the Fed continues to expand the supply of money at the rate of approximately 15% per year, but has made it difficult to track this fact by the discontinuance of the M3 money supply measurement stick . The
U . S . is not alone in printing money, however . There is no longer any major central bank whose currency is linked to gold or silver and which is not increasing its supply of fiat money at an alarming rate .

In the United States (now the world’s largest debtor nation) the result is the ever-deepening decline in the value of the dollar and the consequent increases in the price of oil, food, base metals, precious metals and agricultural products: wheat, corn and soybeans, etc . . The government allows John Q . Public to believe that the oil companies and large corporations are responsible for the increase in the cost of living; but the high cost of oil (and other goods) is the result of inflation, not its cause . The cause is the issuance by the Federal Reserve Bank of excessive amounts of fiat money unrestrained by any linkage to either gold or silver, or to any other collateral which has intrinsic value .

While almost everyone suffers as the dollar declines in value, the greatest harm is being done to the middle class, to the saver and to the individuals who struggle to meet their daily needs on pensions and fixed incomes . Indeed, inflation is the worst kind of tax, and the inflation created by the Federal Reserve Bank is decimating the purchasing power of the earned dollar, the saved dollar and the purchasing power of the social security and pension dollar . Unless a drastic change is made in the Fed’s strategy to address the mistakes made under Messrs . Greenspan and Bernanke, we can look forward only to a serious economic depression in the face of hyperinflation .

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation . ”

—Lenin