My Name is Fred

My name is Fred.  I am the financial manager for my household, and I do such an incredible job at it most people call me "The Fred."  Although I have never done a day's honest work in my life or produced anything of value, I am considered an expert at money management. 

My wife is Theresa.  She has never worked or produced anything, either. She is responsible for paying all the bills.  She spends a lot.  Each year she spends at least one-third more than we take in.  In fact, she has been doing this for so long that we owe five times more than we bring in for a year.  We have some pretty nifty solutions to take care of this.

For one thing, when she needs more money, she comes to me and I simply write the amount she needs in the checkbook register.  Shazzam!  I create the money for her, just like that, and she can continue writing checks.  When that isn't enough, she just uses her credit cards.  She has credit cards from all over the world.  She only makes the minimum payments, so there are really large balances.  We pay a lot of interest charges. 

Finally, we have a large house and allow a family named the Sitts to live here.  Because it is such a privilege to live here, for rent we charge the Sitts one-third of everything they earn.  If Theresa needs more money, she just charges the Sitts more; we pretty much decide how much they can keep.  As long as I can keep writing in new money into Theresa's account, as long as she has credit cards, and as long as we can get money from the Sitts, Theresa can keep spending.  If it weren't for these things, with the amount of money we owe, we would already be bankrupt.  

Theresa has a brother, Sam.  He runs a retirement planning business.  Because the Sitts live here, we demand that they use his retirement plan.  The mother and father paid into the retirement plan ever since they started work.  That money was supposed to be kept for the Sitts' retirement, but unfortunately Theresa spent that, too.  She gave Sam some IOU's for the money, but the people obliged to pay the IOU's are the Sitts' children. 

Theresa has a kind heart, and a generous one.  She is always concerned about the poor Sitts, who really aren't able to think or plan for themselves.  Her brother Sam also has a health insurance business, and of course we demand that the Sitts use that as well.  It is a great plan, and because Theresa is so generous, she gives the older Sitts five times the amount of money for health care that they paid into it. 

Another family moved into our house, the Grants.  They just showed up. After they were here, they had a baby, so they have to stay.  They do some work around the house, but we don't charge them rent. The Sitts children used to do the work around the house, but the Grants charge us a lot less.  We pay for the Grants' children to go to school, with money we get from the Sitts. 

I am sure that by now you have recognized that Fred is the Federal Reserve, Theresa is the Treasury, Sam is the Social Security Administration,  the Sitts are citizens, the Grants are illegal immigrants, and this is how our country is functioning.  At some point, the limits of creating money, borrowing, and taxing will be reached, and then the mathematics are pretty much certain that we will be bankrupt.

Perhaps you have seen how other countries are dealing with this right now, particularly in Europe.  Nations that have overspent are now desperate for more money.  The nation of Cyprus has decided that the only way to cope with its obligations is to seize ten per cent of all the bank deposits in the country.  If you have put money into a Cyprus bank, you simply forfeit ten percent as a gift or tax to the government.  There is some thought being given to not making the people with smaller accounts pay as much.  Of course, nothing like that could ever happen in the United States...

I would like for you to revisit my post, "When Caesar Steals."  The ultimate root cause of inflation is an excess of money supply.  When there is more money, it is worth less, and prices rise.  When the Treasury needs more money that they cannot raise by taxation or borrowing, they get the Federal Reserve to make more money.  They don't do it by printing it, they do it by crediting the Treasury account and simply create the money on the Treasury balance sheet.  This is often done under the guise of purchasing something from the Treasury, and today is called "Quantitative Easing."

Why then is the reported inflation rate so low?  There are a lot of reasons.  For one, the Bureau of Labor Statistics does not calculate inflation in the same way that they did twenty years ago.  Inflation is supposed to be determined by looking at a basket of goods and following the prices over time and the effects on the quality of life of the consumer.  They first began a process of "substitution," and and this meant that if the price of something rose, they assumed the consumer would simply substitute another cheaper item in the basket and still have the same quality of life. The second adjustment was called "hedonics" and this meant that if the price of something rose and its quality rose as well, then that led to a better quality of life and shouldn't be counted as inflation.  You can read about these adjustments on the Bureau of Labor Statistics website.  Finally, inflation also depends on the "velocity" of money and how often it is changing hands in transactions.  Our economy is sluggish, with the GDP only growing 0.1% in the last quarter of 2012.  If the economy were more active, we would see more inflation.  Although the reported inflation rate for last year was about 2%, if it were calculated as it has been for most of our country's history, the rate would be much, much higher, probably at least five per cent.   

If you go to a website such as http://www.usinflationcalculator.com/, you will see that a dollar today is only worth eighty cents in 2003 money.  The cumulative rate of inflation for those years was twenty per cent, using the government's figures.  What this means is that because the government created more money, it is worth less.  You had twenty per cent of everything you own taken from you in ten years.  Not just your bank deposits, everything.  And everybody, including the poorest, paid the same "tax."

"Render therefore unto Caesar the things that are Caesar's" (Luke 20:25).  Caesar, Fred, Theresa, and Sam are rendering unto themselves all that they can, even while we sleep.