Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

The Folly of the Fed

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From the time of the Declaration of Independence until the establishment of the Federal Reserve in 1913, the value of money actually increased over that century and a half. The money supply was stable and technology improvements and capital accumulation meant that peoples’ savings (even money stuffed in a mattress) effectively increased in value over time because it could buy more for less.

Because the governments adhered to Article I, Sec 10 of the Constitution: “No State shall make any Thing but gold and silver Coin a Tender in Payment of Debt” which reflected the Founder’s respect for Deut 25:13 “Thou shalt not have in thy bag divers weights, a great and a small.”  The founders understood the danger and corruption of paper money, and also the practice of diluting the precious metal content of the coins, which destroyed the Roman money so spectacularly. (The Byzantines had a 1,000 year stable money supply; they are mankind’s best example. No other money supply has been uncorrupted for so long.)  In response, right after the Constitution’s ratification, the Coinage Act of 1792 provided the death penalty for messing with the money.

And now we see the effects of what they were concerned about.  Modern Americans just expect to lose 2-5% per year on the value of their money. Instead of retirees’ nest eggs buying more each year, we expect our money to buy less. Instead of technology improvements and capital accumulation improving productivity over a generation and creating higher standards of living, we have to take more risks with our investment money in order to overcome the headwinds of a deliberately inflationary monetary system.

Surprise surprise.  When we stick with what’s Biblical we prospered. When we abandon it, the people suffer. Our current financial mess is a exact result of this Federal Reserve folly.

Written by heyercapital

July 15, 2009 at 7:00 am

Posted in Econ

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