I’ll make this short. The Federal Reserve, which is a private corporation owned by the money center banks and creates what is known as the U.S. dollar (but is really a debt instrument called a “Federal Reserve Note”), insists that the best condition for the U.S. economy to thrive is for the value of the U.S. dollar/federal reserve note to decrease by 2% every year. In other words, the “Fed” as it known has a target inflation rate for the dollar-based U.S. economy of 2%. Anything significantly more or less is considered to not be acceptable.

So, what this means if the Fed has their way, is that anything that you own as a financial asset that is denominated in dollars (federal reserve notes) will become less valuable by 2% every year and every ongoing payment that you receive such as salary, interest, or dividends will be less valuable by 2% every year. Why is this a good thing? Why does the Fed and everybody else who takes 2% inflation as being optimal insist that 2% inflation IS optimal? Why is any inflation at all the best case for the economy and every participant in it? In other words, why isn’t 0% inflation the best case? Taking it to another level, why wouldn’t some small amount of deflation every year be good for the economy? I am not suggesting that it would be good, I’m just asking the obverse of the question on the table for clarity.

The only thing that I can think of is that inflation must be really good for the Fed. I can’t imagine that they want to see a steady level of inflation for the sake of the country or its citizens…that doesn’t put a dime in the shareholders’ pockets of this private corporation. I’ve got to believe that dollar inflation must make its way to the Fed’s bottom line and/or the asset column on its balance sheet somehow, big time! But I just don’t know.

If there is anybody out there who reads this column on RMN and thinks that he/she does know the answer to my question(s), please do a reader response and enlighten us all.

Thanks.

MAX