Everybody's Problem

CS Lewis considered Pride the worst of the deadly sins, because it was the source and stimulus of all the others. Among government institutions, the same can be said of the Federal Reserve.

Huntsville, AL

July 31, 2025

We’ve noted the tendency of government busybodies to make, magnify, or invent messes… and then “solve” those problems by making them worse.

In doing so, the do-gooders enhance their status, inflate their finances, and divert attention from more serious shenanigans happening off-stage. Today we retract the curtain, and shine a light on the prime protagonist of most public pathologies.

Paw Prints

CS Lewis considered Pride the worst of the deadly sins, because it was the source and stimulus of all the others. Among government institutions, the same can be said of the Federal Reserve.

We know the Fed isn’t technically a government agency. Officially, it’s a State-sanctioned “private” cartel whose governors happen to be appointed by the President, approved by Congress, and serve at the behest of big banks.

“The Creature from Jekyll Island” was constructed a century ago at a clandestine conclave off the coast of Georgia, to which top-tier Senators, Wall Street barons, and captains of industry traveled under assumed names.

By the time they‘d settled into their dining cars for the return trip north, the foundational concrete had been poured. The meeting was secret, but the fat cats left enough paw prints in the cement to let us know who was there, and what they did.

Using the Panic of 1907 as a handy excuse to erect an edifice they’d long wanted to build, these luminaries gathered to ensure that “the system” would never again be compromised by the irresponsible acts of a few bad banks.

Instead, from then on they’d all be in on the scam! Their new “lender of last resort” would serve as a controlled croupier, dealing financial favors from the bottom of the deck.

No longer would a few rogue banks over-extend themselves atop the inverted pyramid of diminishing reserves. Now, every bank would do so. And the process would be carefully coordinated by a new captain, steering a hull that hauls its own icebergs.

Sophisticated Consigliere

The government, as comedian Dave Smith put it, is the mafia masquerading as a human rights organization. The IRS is its street-corner muscle, the brass knuckles that instills fear to empty pockets.

The Fed is a more sophisticated consigliere. It operates behind the scenes, surreptitiously fleecing the flock to fund the racket.

Whereas the IRS storms the cellar and steals the wine, the Fed slowly dilutes it. But only after pouring the Château Margaux into the glittering goblets of its connected cronies. The general public gets the remaining rotgut. While the Big Shots catch a buzz, the hoi polloi suffer the hangover.

It is this counterfeit cocktail that numbs average Americans while ripping them off. By taking our money to keep our booze, the central bank bartender siphons funds from the outsiders to the insiders, Main Street to the Deep State, the makers to the takers. This home-made hooch “pays for” the wars, bail-outs, stimulus checks, pay-offs, annual bonuses, and big boats that keep the grift afloat.

By counterfeiting currency to buy “assets“ and monkey with rates, the Fed distorts the structure of production, jams price signals, precipitates cyclical booms, and necessitates painful busts. The Great Depression, the stagflation of the 1970s, the dot-com bust, the 2008 meltdown, and the “everything bubble” that’s starting to leak were all consequences of monetary malfeasance.

Transparent Marbles

But funny money also enables colossal crises that otherwise couldn’t occur. The First World War…and the incessant conflicts and carnage it bequeathed the subsequent century…would have been impossible, or severely constrained, without a steady infusion of counterfeit cash.

Like transparent marbles across a ballroom floor, each injection of phony money becomes a hidden catalyst for a new calamity. It isn’t only the dogs of war that it loosed from their leash. Fake money freed a litter of ravenous hounds, that have grown into embedded institutions that get hungrier as they eat.

As with any counterfeiting racket, the beneficiaries of the fraud are those who first receive the funds. With their conjured cash, they compete with unsuspecting suckers for an unchanged quantity of desirable goods.

Without creating real resources, the initial recipients use this new “money” to pilfer wealth. By the time the sham cash reaches later recipients, its intrinsic value has become apparent. Prices have risen, goods are gone, and the masses are left holding the bag.

Trunk of the Vine

But where did its contents go? After World War II, and particularly since the 1960s, government money fertilized a thicket of connected industries that grew like weeds.

Their growth was initially inhibited by the herbicide of gold. But since that constraint was removed in 1971, these crony rackets have covered the country like kudzu over Georgia. They spread in every direction, but the trunk of the vine is the financial services sector.

Loans are the coin of the realm in a debt-based system. Using monetarist pixie dust, the central bank (thru its member banks) conjures cash from thin air to buy government debt. When the Fed lowers rates or reduces reserves, it entices banks to create money by extending loans.

This river of money soon flows to and from its fertile banks. It overflows them as liquidity rises, to nourish the industries, boondoggles, bamboozles, and scams that crave the wave.

For half a century prices have risen on an ocean of debt. Among those washed while we get cleaned are the Educational, Pharmaceutical, Military, and Medical complexes that soak us today.

The catalogue of carnage governments committed couldn’t have been published without clipped coins, debased money, or counterfeit currency. Neither World War, nor most martial misadventures since, would have been possible without a Niagara of ink from the Federal Reserve.

Whenever there’s a question, the answer is always more “money”. A respiratory virus? Fire up the presses. “Supply chain” disruptions? Need more “liquidity”. Rambunctious Russkies? Create more “cash”.

Much as our wise central bankers should remove the punch bowl and take the keys, some wiseacre always orders another round and puts a new song on the jukebox. No matter what happens, the Fed is at the wheel…pressing pedal to the medal, and careening toward a cliff.

And its fated to fall from a deepening hole. US government debt recently crested $37,000B.

That’s billion, with a “T”.

At the turn of this century, the tab was “only” $6T. Ten years later, after launching two idiotic wars and bailing out its wealthiest benefactors, the feds owed $14T.

They had so much fun doubling the debt in a decade that they decided to do it again. When 2020 ended, they were $28T in hock. Half a decade later, they’re closing in on forty. According to the Institute for International Finance, worldwide debt is about $325 Trillion - more than three times global GDP.

But that was five months ago. Who knows what heights they’ve ascended since? As noses bleed and heads spin, creditors wait anxiously at the base camp.

They have to know that if their money comes down, it’ll be a skeletal remnant of the flesh that went up. It’s wandering aimlessly in the thin air of uncharted territory. The scouts and sherpas to whom it’s entrusted are unreliable guides. How were they able to climb so high?

The Natural Tendency

“Official” inflation approached 3% in June, based on a CPI that’s manipulated to mask the real rate at which prices rise. It’s also atop the 9% increases three years ago. Regardless supposed reductions in inflation rates since, this compounding continues to crush consumers.

The Fed’s “target rate” of 2% inflation…which would cut wealth in half in only one generation…is in the rearview. Were rising prices measured as they were four decades ago, the rate of increase is triple what we’re told it is. Denominated in gold, it’s ten times worse.

While it can be useful to reflect a trend, any macro “rate of inflation” will be incorrect. As an aggregate number, it hides more than it reveals. Prices of different items rise at varying rates and people buy them in different amounts, so the stealth tax shifts wealth in numerous ways. Using a single number to capture innumerable effects is misleading at best, particularly when that number is itself fraudulent.

In a healthy, sound money economy, the natural tendency is for prices to fall, as they did through the prosperous decades of the Belle Époque, under the classical gold standard.

That being the case, the official “inflation rate” should be compared not to a baseline conveniently reset to zero each year, but to price decreases that would otherwise have pertained. By using an artificially high benchmark, the inflation rate understates actual monetary dilution…leaving aside government efforts to mute inflation with statistical shenanigans like “hedonic adjustments” and elimination of essential “non-core” expenditures such as food and energy.

Treasury Secretary John Connolly once told other countries that the US dollar is “our currency, but it’s your problem.” The same could be said today.

But now, it’s everybody’s problem.

Given real rates of inflation, natural interest rates would likely exceed 10%. That’s merely my meaningless guess. The only way to know is to let the market tell us.

But indebted governments, leveraged investors, and over-extended institutions wouldn’t like what they hear. So it won’t happen… at least not intentionally. But markets have a way of saving their voice, and of silencing attempts to shut them up.

JD