The Ultimate in Fiscal Fraud

According to the Wall Street Journal, total Federal Reserve Bank credit increased by about $2.5 billion. This is money that the Federal Reserve created out of thin air to carry on the business of, well; I don't really know why they need that much money, but they created it.

And this is just the amount created last week. And it is down a little from the previous week. Sounds like a lot of money to me.

If you read a little further down, you will find a category called: US Securities: Bought Outright. That means that the government issued bonds and the Federal Reserve purchased them, to the tune of $1.4 billion.

As you may have read in the local paper where you live, the government is running up some pretty big bills, what with this big War On Terror that we are fighting and everything else going on around the world. The only way to pay for all of those things is to sell bonds. Up until earlier this year, foreign banks and investors were buying all of the bonds we needed to continue operations. Lately, that has not been the case. Increasingly foreign governments are beginning to diversify their holding of currency and investments, mostly US.

So how do you keep the government going when the foreigners have stopped buying our debt? You sell it to yourself. And that is exactly what the Federal Reserve did last week. They created and extra $2.5 billion and then turned around and used that money to buy US bonds that otherwise would not have sold.

What does all of this mean? It means we are creating money out of thin air to continue operations because we do not have enough cash on hand to meet current obligations. It is comparable to you or I kiting checks. You know, writing out of one account and then depositing a check from a second account into the first account to cover the overdraft. By the way, do not try this at home; it is illegal…unless you happen to be the government.

This is known as monetary inflation and it has always been followed by price inflation because that is just how things work. So, as if the recent price increases haven't been bad enough, you can expect more on the way. In fact the IMF recently reported that global inflation is increasing at the fastest pace in ten years.

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