The Federal Reserve’s Shell Game

(From FEE)

The Federal Reserve is a key component of the US government’s wealth redistribution apparatus. Under the guise of “macroeconomic management,” it redistributes vast amounts of wealth on an ongoing basis through inflation. The victims of these transfers are ordinary Americans. The beneficiaries are the government and its elite cronies.

The Fed masks the nature of this surreptitious taxation and corporate welfare by performing a simple shell game that is just complicated enough to confound the general public…

…The true wealth of society—what actually sustains human life and makes it more comfortable and delightful—is the stuff we buy with money; not money itself. It’s the food, clothing, housing, smartphones, mountain bikes, and other consumers’ goods. It’s also the farmland, factories, robots, raw materials, labor, and other producers’ goods used to make those consumers’ goods. I covered this point in detail in my article, “How Inflation Drinks Your Milkshake.”

The losers include the private market actors that would have acquired the labor and resources, had they not been outbid by the government.

Creating new money does not create any additional stuff to go around. So if creating money got the government more stuff, that means others sharing the same world of scarcity must have less stuff. It’s a zero-sum game; a win-lose situation. If the government wins something through inflation, somebody has to lose. So who loses?

Well, what if the government did not have the money needed to hire the bureaucrats? Then that labor would have had to enter the private market. And what if the government couldn’t afford its weapons purchases? Then that capital would have been liquidated, even scrapped, and would have also been reallocated to the private market. So the losers include the private market actors that would have acquired the labor and resources, had they not been outbid by the government’s inflation-enhanced purchasing power.

But the government paymasters are not the only one who gained from the inflation. The bureaucrats and contractors themselves did too because their wages and selling prices were bid up higher than otherwise. And then since the government suppliers also have more money to spend, their own workers and suppliers benefit similarly.

Click here for the article.

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