The Fed and it’s Mandrake Mechanism

February 27, 2020

My Dear Reader,

Much has been made about the Federal Reserve System, especially in the latter half of the 20th century. The idea behind the Reserve is similar to the central banks of Europe, where a handful of board members from several banking families would decide the monetary policy of whatever nation they were based in. Naturally this would spark conspiracy theories, as any group of wealthy men meeting in secret would. It’s important to note that many of these conspiracies are sometimes wildly inaccurate, but the level of control that the Federal Reserve holds over the economy is especially frightening when we realize that the world is supported by the U.S. dollar. Mathematical equations and banker jargon aside, the power that the Fed holds can be exemplified in the Balance article referenced earlier on the United States inflation index:

“Inflation also responds to monetary policy enacted by the Federal Reserve. The Fed focuses on the core inflation rate because it excludes volatile gas and food prices. The Fed sets a target inflation rate of two percent. If the core rate rises much above that, the Fed will execute [a] contractionary monetary policy. This increases interest rates, shutting down demand and forcing prices lower.”

There’s much to unpack here, and it’s necessary to do so before we get to the issues at hand that affect our daily lives. Inflation is a hidden tax that eats away our savings every year regardless of where we put our money. The problem is that the actual number is higher than reported, because the Fed often drops numbers from the calculations to lower the published number and keep the inflation rate around 1 and 3 percent. The issue is that inflation, or hyperinflation to be more precise, creates an environment that only the wealthiest can thrive in, and even their fortunes aren’t secure. For us, it means that with our savings, we must outpace inflation and taxation, as well as an ever increasing cost of living to simply stay where we are. I believe that Grandma and Grandpa shouldn’t have to risk their savings in the stock market, which is little more than an overblown casino, but the truth is that banks haven’t paid out high interest rates in years and the “safe” investment in bonds and CD’s won’t come close to covering the cost of inflation, let alone taxation. I believe this is the root cause of the many financial traps that can ruin any plan, and it’s also why I believe that focusing on minimizing loss is more important than chasing a rate of return.

To your creation and potential,

Kevin Prendiville