Bailout by Stealth by James Corbett + Ron Paul: Inflation is an unfair tax

Dandelion Salad

Sent to me by the author.

by James Corbett
The Corbett Report
30 September, 2008

While the public is distracted by the “bailout bill” and its rejection, trillions are pumped in to keep financial balloon inflated

The media is falling all over itself to report on every minutiae of the so-called Wall Street “bailout bill” and its rejection by Congress yesterday (just a few of the thousands of examples can be seen here and here and here and here). And why not? The media’s breathless coverage of the bill has produced a furious backlash by the public and hysteria on Wall Street in a self-justifying feedback loop that makes the media attention seem merited.

The startling truth which the controlled corporate media is not reporting, however, is that a bailout is actually taking place right now, completely out of the public spotlight. This program has already pumped trillions of dollars into Wall Street (compared to the mere $700 billion proposed in the legislation that the media is focusing on) to help prop up the faltering investment banks and promises to pump in even more, every dime of it to the detriment of the taxpayer though the public will have no stake in its success. Why, then, is this program not being talked about in the media?

Slipping under the radar last week amidst the hullabaloo in Washington over the bailout bill was this story noting that in the past week alone, the Federal Reserve had pumped an astonishing $188 billion per day into the system in the form of emergency credit. This means that in just four days, the Fed injected as much money into the system as the entire $700 billion bailout proposal. After the proposal was rejected, the Fed responded by immediately announcing it would pour another $630 billion into the global financial system.

The Federal Reserve, of course, is America’s central bank and although the above story conjures the reassuring image of a national bank lending out some of its vast reserves to help Wall Street weather the storm, the fact is that the Federal Reserve is not Federal and has doubtful reserves. In fact, the trillions of dollars that have been lent to the banks in the last few weeks were created out of nothing by the privately-owned Federal Reserve. When the Federal Reserve “lends” money to a bank through repurchase agreements (repos), credit auction or other method, it is not actually lending out money from its vaults. It is simply creating the money it “lends” out as electronic credits created in the recipient banks account. It is literally money out of thin air.

That the general public is on the hook for this money created out of nothing is not an exaggeration. It is paid for in a dimly-understood mechanism often known as the “inflation tax.”

Inflation is nothing more than an indication that the ratio of money to products that can be purchased with that money has been increased. Since the overall number of dollars has gone up without any corresponding increase in economic production (as happens when the Federal Reserve creates money out of thin air), the value of each individual dollar goes down. That means that the value of the money in each individuals’ bank account (not to mention their pension and social security dividends) can be reduced simply by the flick of a pen of a Federal Reserve paper-pusher. (Unless of course that individual just happens to be a billionaire investment mogul or a Vice President who can divest themselves of U.S. dollars in time for this inflation not to affect them.) This is sometimes known as an inflation tax because its overall effect is the same as if the government came in and took that value out of the individuals’ bank account. Watch Ron Paul explain the inflation tax in the video below:

Ron Paul: Inflation is an unfair tax – Bernanke: I couldn’t agree with you more

July 16, 2008

Ron Paul to Fed. Reserve chairman Ben Bernanke:
“…we had free rides all these years…that we were able to shipped our inflation oversea…now the debts come home, you have to buy back these bad debts…I maintain that inflation is a tax, it is an unfair, a regressive tax, it hurts the working class, the poor and the poor retirees the most…”

Ben Bernanke:
“Congressman, I couldn’t agree with you more that inflation is a tax, that inflation currently is too high…”

watch via

The most insidious part of this inflation tax is that the inflation does not begin until the new money begins to circulate in the system. In other words, the first person (or, more likely, giant corporate conglomerate) to use the money receives its full value, while those at the bottom of the pyramid retrieve the diminished returns of a devaluing dollar.

Why, then, is the public not furious about this stealth bailout, now taking place at the blistering pace of nearly $1 trillion a week, and all to the taxpayer’s detriment? The obvious answer is that the media is not whipping the public into a frenzy about it, instead focusing its attention on a $700 billion program and allowing the public to feel like they scored a blow against Wall Street when the program gets rejected. If so, it’s time the public got wise to how the system is really being run by and for the benefit of private bankers and at the expense of the average taxpayer. Otherwise, the fleecing of the public will continue unabated even as the public thinks they’ve won the battle.

Related works from The Corbett Report:

Money Masters Producer on Economic Crisis (video)

How To Fix the Economy (podcast episode)

Richard C. Cook on Monetary Reform (interview)


The Money Masters – How International Bankers Gained Control of America (video)

Catherine Austin Fitts: Financial Coup d’etat

Stuff the Bankers by Dale Allen Pfeiffer

Eat Your Cats and Dogs by Joel S. Hirschhorn

FINALLY Someone Said “No” by Richard C. Cook

Ron Paul: You’re Going To Destroy A Worldwide Economy!

Exclusive: Resolving the Wall Street Financial Crisis: Monetary Reform

Richard C. Cook: Poverty In the Midst of Plenty (audio)

7 thoughts on “Bailout by Stealth by James Corbett + Ron Paul: Inflation is an unfair tax

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  6. The Federal Reserve has operated on the principle of an elastic monetary system and has generated “thin air” money through fractional reserve lending for nearly a century. The 630 billion the Federal Reserve poured into the global economy was a currency swap which reduces inflation.

    According to you definition all loans, private and government, create money out of “thin air.” There is not a single lending institution that has reserve amounts equal to their loan balance sheet. They are only required to hold a percentage of all outstanding loans in reserve capitol. In fact repurchase loans, at least offer some form of collateral in the forms of securities. They are actually safer then long term loans with no collateral. The Federal Reserve has the option to liquidate the securities in the event of default. To boot, all the money the Fed sends out in repo loans is returned in about 7 days. While they are stretching their ability issue loans, they aren’t just mindlessly throwing out money and telling lenders “go ahead and keep it.” All those billions of dollars are being returned, and if their not due to default we’ve got a bigger problem on our hands then an inflation tax.

    Unless you want to go back to a 19th century financial lending model and back all loan balances with equal reserves, realize the elastic monetary system helped this country experience tremendous economic growth. Everyone wants to silently enjoy the virtues of prosperity, but when a risk inherent in money markets pops up, we’re all quick to extol the “fleecing” the system perpetuates.

    I’m not saying everything is wine and roses. There are holes in the boat that need fixing. And we’re not going to accomplish that by waving our finger and saying “the little guy is getting screwed.” I, for one, welcome our tax dollars to be used to rescue a failing banking system because the alternative of letting them fail would be much worse.

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