Guest Post: The Federal Reserve: Our Policy Is To Steal From You

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

The Federal Reserve: Our Policy Is To Steal From You  

Inflation is theft in more ways than one: it also steals our liberty.

We know two things: 1) the official policy of the Federal Reserve is to engineer and maintain inflation and 2) inflation is theft. As I have recounted here many times, in nominal terms, it looks like average wages (earned income) in the U.S. have been rising smartly for decades. But measured in purchasing power, i.e. adjusted for inflation, earned income has declined for most workers, especially in the past three years.

Measured in purchasing power, i.e. the number of gallons of gasoline or loaves of bread an average worker could buy with one hour of labor, American workers have experienced a steady decline in the value of their labor for the past 40 years.

Whenever a pundit scoffs at the idea that the dollar might lose 95% of its value, readers remind me it already has lost 95% of its value in the past century.

The dollar has lost most of its value just in the past 45 years; according to the BLS inflation calculator (which very likely understates real inflation), it takes $7 2011 dollars to buy what $1 bought in 1966, at the top of the post-war Bull market.

Can we buy 7 times more goods and services now? Or can we actually only buy 6 times more goods? If so, then our earnings have actually declined by 15%. Put another way: 15% of our earnings have been effectively stolen via inflation.

The Federal Reserve robs savers every day of millions of dollars, which it then transfers to the "too big to fail" banks by paying interest on those banks' reserves. Savers earn .01% on their cash while banks are paid 2% interest. The difference is what is stolen from savers and funneled to the banks.

Inflation is theft not just of cash but of liberty. Longtime contributor Chad D. explains why:

I've never seen this topic covered (not to say that it hasn't) which is of great interest to me: the nexus of the criminal justice system and the financial system, specifically the inflationary nature of our system. The criminal law books have statutes (and their associated regulations) with provisions regarding the value of property and the relative level of crime with which a person would be charged, if one violated that law. In addition, these statutes spell out the amount of fines and penalties for convictions for those crimes.

The trouble is that these statutes are not indexed for inflation, so what happens is people are charged with a higher level of crime than they otherwise would have in the past, for no other reason than inflation.

As an example, if a person in NY decides to intentionally damage the property of another with a value of $250 or more, he is guilty of a felony. Intentionally damaging the property of another which has a value under $250 is a misdemeanor. Well, that statute was passed over thirty years ago, when $250 was a decent chunk of money. $250 in 1980 is equivalent to $653 today, according to an inflation calculator on the web that I used. Conversely, a product that costs $250 today only cost $86 in 1980.

So if the law were to remain equal over time, the triggering level for the felony level of the statute should have been revised upward to around $650 to reflect the inflationary nature of our system. What we have now is a number of people being charged with felonies when they should only be charged with a misdemeanor if the statutes were indexed for inflation.

Let's run through a scenario. In 1980, I decide that I'm going to intentionally damage my friend's stereo that's worth $200 and I get arrested for doing so. I would be charged with a misdemeanor. Fast forward to 2010, I damage the same stereo, but now, because of inflation, that stereo is now worth $522. Now I get charged with a felony.

My actions have not changed and for the sake of this example, the stereo has not changed, either. Now, we have a lot of people getting felony records and we are having to spend more on prosecuting these offenses (felonies generally cost more than misdemeanor to prosecute for various reasons). One can argue that the stereo has gotten better, so my example is imperfect, but that misses the point. The point is that the statute was promulgated upon the assumptions that a dollar represents an adequate measure to value property and also to set a minimal value upon which a felony prosecution would take place.

If the relative value of the dollar goes down over time due to government mismanagement, how is that statute a fair one? There was no debate in our legislature or discussion in our society to see if we want additional numbers of people prosecuted for felonies, rather than misdemeanors.

We could look at reporting requirements the same way. For example, one has to file reports with the feds, if one has cash transactions of 10K or higher. Again, back when the statute was passed, 10K was a good chunk of money, but now it doesn't buy nearly as much.

Consequently, the number of these reports has skyrocketed, at least in part, due to inflation. How efficient is that? Are we catching more criminals because of it or are we making more criminals out of otherwise decent people? The same goes for fines. Are fines that are promulgated 30 years ago still an effective deterrent? I don't think so, in general. Though, I have noticed that the government is much better at raising fines than raising the levels for felony prosecution.

After writing the above, I decided to do some more research and I found that some NY statutes have been revised upwards (e.g. grand larceny) due to inflation, but not the statute about which I was talking (criminal mischief 3rd). The legislature did raise the minimum felony threshold for grand larceny to $1,000 several year ago, but not criminal mischief, which just highlights the problem in my mind. (Note: Raising the level for felony criminal mischief is currently being considered by the legislature).

Even though some in government are aware of inflation and its nexus with the criminal justice system, nothing (semi-)automatic is put in place to assure a consistent, fair application of the law. In this case, the legislature changed one law, but not another.

What other laws are missing, I wonder? Should the grand larceny level be raised again right now? Why should numerous people be subjected to felony charges, because of legislative/bureacratic inertia? Are other states or the federal government better at taking care of this? What happens when the inflation rate starts to get exceedingly high in the coming years, as we get QE 3,4, 5, etc.? So, it appears some people are looking at this, but not enough, in my opinion. I doubt many law makers and law enforcers really understand how pernicious inflation actually is.

One last example: consider the absurdity of the disparity between the current criminal mischief and larceny laws here in NY. For instance, if I intentionally damage a stereo that is worth $750, I would be charged with a felony. If I steal that same stereo, I would be charged with a misdemeanor. Crazy, right?

Correspondent Chris noted the pernicious way that long-term capital gains enable theft of purchasing power via unrecognized inflation:

The problem with long term capital gains is that it taxes inflated gains, not real value.

Say I invest $100 in stocks and then sell them 15 years later for $200. I made a profit of $100 right? Wrong! During that time inflation (caused by government policies) reduced the value of my money so that the purchasing power of my $200 is about the same as the $100 I invested, meaning I really made no money at all.

If capital gains laws allowed us to inflation adjust the basis then I would have no problem with taxing the gains at the normal rate of the rest of your income.

Thank you, Chad and Chris, for highlighting two of the many perversions created by the Federal Reserve's explicit policy of stealing from the American public via inflation. Too bad theft via inflation isn't a felony.

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Quixotic_Not's picture

Another day in cowardly (D) & (R) Free Shit Empire™...wake me up when the DemoRATs and GOPhers find out they aren't really Americans.

Remember that a government big enough to give you everything you want is also big enough to take away everything you have. ~ Davy Crockett

Patriotism means to stand by the country. It does not mean to stand by the president or any other public official ~ Theodore Roosevelt

Paramount among the responsibilities of a free press is the duty to prevent any part of the government from deceiving the people. ~ Hugo Black, Supreme Court Justice

Hearst's picture

Don't forget to add this just released bit of info which highlights the above articles point.

Fed’s Dudley Got Waiver to Keep AIG Holdings


The Federal Reserve Bank of New York’s William C. Dudley got a waiver in 2008 to keep personal financial holdings of American International Group Inc. after the company received a Fed rescue, a U.S. senator said.

Dudley, who was the New York Fed’s markets-group chief at the time and is now the bank’s president, is the senior New York Fed official identified in a Government Accountability Office report today as receiving the waiver, Senator Bernard Sanders, a Vermont Independent, said today in a statement. Jack Gutt, a New York Fed spokesman, declined to comment."

GottaBKiddn's picture


"Too bad theft via inflation isn't a felony."

It is a felony, it just isn't prosecuted.



Quaderratic Probing's picture

Scared me too so I checked my wallet....Thank God not one single dollar I earned in 1966 was there. I had 7 bucks I earned yesterday and they were not hit too bad. I expect to buy a burger with it today, and will devalue that food to shit by tommorow. The burger store can worry about the 7 bucks value next week.... but I bet they will buy something with it before too long. Burn rate for $100 is 4 days ( time average person holds $100 ). 98% of what they buy is valueless soon after they own it.

Hondo's picture

FED policy of stealing savers wealth accumulation is killing the elderly group who had saved and expected to live off the income and principal....eating in to principal a decade before they expected.

Quixotic_Not's picture

Same shit, different century...

Anyone who has the power to make you believe absurdities has the power to make you commit injustices. ~ Voltaire

The world is a dangerous place to live; not because of the people who are evil, but because of the people who don't do anything about it. ~ Albert Einstein

The government I live under has been my enemy all my active life. When it has not been engaged in silencing me it has been engaged in robbing me. So far as I can recall I have never had any contact with it that was not an outrage on my dignity and an attack on my security. ~ HL Mencken

Azannoth's picture

"The problem with long term capital gains is that it taxes inflated gains, not real value."

The system has all bases covered, be born a slave die a slave

Reminds me of the movie 'War Games' where a computer learns that the only way to win is not to play

Only the subtitle should read 'Winner is: Not You'

HungrySeagull's picture

The winner was the Movie theater. We had em stacked 12 across two decks deep in a 1/3 mile long shopping mall for 6 hour waits to standing room only 700 at a time per viewing every two hours in all 10 theaters. Nothing else was being shown for a long time.

That was a crazy time in those days.


Now here we are sitting in a world where a Arab can carry nuke and ensure that NYC is a smoking hole in the land.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Yes, an Arab asset of the CIA you mean.



weinerdog43's picture

I didn't realize Tim McVeigh was an arab CIA asset.

chemystical's picture

i didnt realize mcveigh had a nuke.


p.s. if you think that mcveigh was anything more than a patsy and that big brother made an earnest effort to find the others involved, then i have some swamp land you might want to invest in.  sorta like when bush vowed to find those who made millions shorting the airlines stocks on sept 10 2001.  how's that investigation going?

PlausibleDenial's picture  Yes, and they do so preferentially. But, who didn't know that???

Matto's picture

Q. If productivity increases by 2% per year (as a figure), and official inflation rate is 3%, what is the real inflation rate? 

Answer: 5%

Matto's picture

(Ignoring the manipulation of official inflation figures themselves)

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Simply put, monetary inflation is the amount of currency produced above and beyond the increase in goods and services.  If monetary inflation is 3% in a given year and goods and services increase 2%, the real monetary inflation rate is 1%.



Matto's picture

No that's the measurable inflationary effect. Monetary inflation is the amount of currency produced in addition to the previous amount of currency produced.

Ripped Chunk's picture

"the official policy of the Federal Reserve is to engineer and maintain inflation"


Thanks, I know this has been pointed out over and over but I think it needs to be posted daily until people finally get it.

Greenhead's picture

"the official policy of the Federal Reserve is to destroy the purchasing power of your money"

Cognitive Dissonance's picture

The dollar has lost most of its value just in the past 45 years; according to the BLS inflation calculator (which very likely understates real inflation), it takes $7 2011 dollars to buy what $1 bought in 1966, at the top of the post-war Bull market.

Very interesting. And if I remember correctly the dollar value of Silver in a 1964 90% Washington Silver Quarter in 1964 was around 6 cents. So if that were to double 7 times, today that would be....

$0.12, then $0.24, then $0.48, then $0.96, then $1.92, then $3.84 and finally $7.68

And at today's Silver spot of $39.83 plus or minus...

$39.83 x .0321507466 x 6.25 x .90 = $7.2031722260

So today's dollar Silver 'value' of that 1964 Silver Washington Quarter is $7.20. Looks like Silver is a very effective hedge against the Fed's currency destruction.


Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Simply put pre-65 dimes, quarters and halves are worth about 27 times $1 face value.



pods's picture

Makes me long for the days when you could get them at 10x face.  


wsmith's picture

Which CNBC girl would you most like to fuck?



The hot Chinese Fast Money girl?

Or the English fag?  His name escapes me.

This is very important, people.

Don't take the poll lightly.

Anyway, so long.

And God bless all you Marxist cocksuckers.

InconvenientCounterParty's picture

holding your breath for a really long time is a blast dude! Just power through the light at the end of the tunnel.

God is waiting to bless you with the rewards you so richly deserve.

Ripped Chunk's picture

should be euthanized.

Sorry to finish your sentence for you.

Cpl Hicks's picture

Your parents must have cut off the cable to your basement boycave; Erin has been gone from CNBS for months.

madbomber's picture

I cant tell if you're saying you're a communist or that you don't like them.  


Stoploss's picture

Felony punishable by hanging.

sitenine's picture

In gold we trust.

Sudden Debt's picture

Inflation has always been there in history. It's also a mayor factor in pricing and profit models.

Inflation is good, as long as it's contained below economic growth. And that... isn't that good...

So if you have a 5% growth and a 4% inflation, you're not in danger but you have no real growth.

But if you have a -5% growth and a 4% inflation, you lost about 10% of your economy.

AND THAT is what's happening because it's cumulative.

If your drowning in debt, whetever outcome, inflation is good. Especially if you don't care about anything else.

And as the FED is trying to stimulate inflation while the economy is in the shit house, that's indeed stealing because they know all to well that when the economy contracts you need deflation but again, when you're drowning in debt... deflation kills you.

A Rock and a Hard place so to speak.

And bankers punish governments more then citizens do, so it's a easy decision.


Tuco Benedicto Pacifico Juan Maria Ramirez's picture

The bankers "are" the governments.



Matto's picture

Fail. The notion that inflation is good is an economic fallacy.

A productive economy earns and is rewarded by deflation.

Nels's picture


So if you have a 5% growth and a 4% inflation, you're not in danger but you have no real growth.

Well, if you have a tax rate > 25%, you have a loss on that 5% gain if you sell.  And as inflation continues, more and more folks will be seeing higher effective tax rates.  Inflation has always been there in fiat money, not so much in gold bullion.

Inflation is theft.  If you are drowning in debt and want to steal your way out of it, then inflation is a good.  It is still theft.

gbresnahan's picture

Now that some of the "too big to fail" banks are no longer at risk, I think it is time to dismantle them and split them up piecemeal.  Too big to fail = Too big to exist.  We can't allow the health of the American/global economy to be at risk if this happens again.

GiantWang's picture

"[I]t takes $7 2011 dollars to buy what $1 bought in 1966, at the top of the post-war Bull market.

Can we buy 7 times more goods and services now? Or can we actually only buy 6 times more goods? If so, then our earnings have actually declined by 15%. Put another way: 15% of our earnings have been effectively stolen via inflation."

What . . . ?  This is wrong.  The question is does $7 today buy exactly what $1 bought in 1966 AND is more work required today to earn $7 than was required to earn $1 in 1966.  Analyzing that information is the only way to conclude that inflation has stolen from workers.  Inflation clearly steals from savers who invest conservatively (and aren't savers conservative by nature anyway?).

Good points on the criminal justice system.

SheepDog-One's picture

The dollar has lost 98% of its 'value' since 1913.

GiantWang's picture

Which is fantastic for companies that existed in 1913 and were net debtors at that time.  The loss in value of the dollar is only one component to determining inflation for people who depend on wages rather than savings.

Your statistic is devastating for people and companies that were net savers in 1913, but the only way to determine the effect on workers is to take into consideration increases in wages.  Does an average hour of work today yield the same purchasing power?

Again, inflation is devastating for savers, especially in an environment like this where interest rates clearly lag inflation and real value is being destroyed.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Amazing how that is a loss of 1 percentage point per year since the establishment of the privately held Federal Reserve in 1913, which means by the end of 2013 the dollar will be worth its intrinsic value.  Plan accordingly!


Tuco Benedicto Pacifico Juan Maria Ramirez

Smiddywesson's picture

The dollar has been debased by 98%???  Yes but that remaining 2% is the best part of the dollar. 

Think of the dollar as a big Tootsie Pop the Fed has been licking for a century, and Ben's just getting to the chewy center.  All is well.

JJSF's picture

I've made it my mission over the past 10 years to just explain one thing to folks in come into contact with whether it's my single-serving-friend on a plane, relatives etc..

And that is explaining in a simplistic way how money is created and to whom the benefits for that creation go..

The following works well and spawns many questions from the person you are talking with..


Me : "The federal reserve creates a dollar out of nothing then it is lent to the treasury and we pay interest on it."

Counterparty: You mean every dollar in existence is currently yielding interest? Who get's this interest?

Me: The Federal Reserve.


SilverIsKing's picture

Money should represent assets, or an IOU on assets, not an IOU on thin air.

Looking at it another way, two people can barter for goods and if one doesn't want what the other offers, he can accept an IOU for that good and use it later or use it in a separate barter transaction.  If someone prints up a bunch of these IOUs, what will the underlying value of each IOU be when they are brought back to the original issuer for redemption?

Amish Hacker's picture

It's a little more complicated than that. In theory, the Fed is a non-profit operation. Their earnings from the interest payments on Treasury borrowings are used to cover expenses, salaries and (lavish) perks. Any money beyond that is returned to the Treasury.

Matto's picture

No, a 6% dividend is taken before the balance is returned.

Amish Hacker's picture

Quite right, Matto. I should have made it clear that the 6% dividend to member banks is considered part of the expenses:

An outrageous system however you look at it. Meanwhile the public sleeps on.


Thisson's picture

How do you explain the counterargument that the interest is then remitted back to the treasury? 

My understanding is that it is, after certain dividends are paid out to Fed shareholders, and that the amount of those dividends are not public info.  I sure would like to know the details.