The relationship between higher prices and money creation is not difficult to understand. Murray Rothbard liked to use the analogy of a tooth fairy who tried to help the world by doubling the money stock and putting the new money under everyone’s pillow. It seems like a wonderful idea, until you realize that every existing unit of money would become worth half of what it used to be. The people would be no better off than they were before.
Analogies like this are useful. Think of a children’s party in which there is only enough lemonade for 10 kids. Thirty kids show up, so the host waters down the juice. Have you really made more lemonade? No, you have just divided the lemonade among more people, giving each kid more water and less flavor.
It’s not rocket science. So why does the Fed do it? Because the money enters into the economy through a circuitous route, starting with the government’s favored bond dealers and then through the banking system. The main beneficiaries are the government’s friends, while the rest of the population pays the price.
And rising prices are not the only consequence of bad monetary policy. There are other effects, such as booms and busts, massive government debt, the leviathan out of control and the enslavement of the working class to debt and economic cycles.
segunda-feira, julho 16, 2012
The Silent Killer: