Maybe neighborhood grocers should set US economic policy 

America would be a better country and we would have better lives if the Federal Reserve were as trustworthy as our local grocery store.

When you buy a pound of hamburger from a grocer, you expect to receive 16 ounces of meat. If your grocer gets caught giving customers less than 16 ounces of hamburger while charging for a pound, the grocer can be fined or even imprisoned.

Yet, we allow the Federal Reserve to defraud us — and tell us it’s defrauding us — but there are no fines or prison terms. This institution makes our money worth less as time goes by, like a grocer devaluing meat by calling a pound 15 ounces and then 14 ounces,

We wouldn’t stand for this from a grocer, or from any other business. But the Federal Reserve has an official annual inflation “target.” Inflation means dollars we earn today are worth less in the future. So the Federal Reserve intentionally devalues our money. Today’s “dollar” is worth about 4 cents compared with  the dollar in 1913, when the Federal Reserve was created.

The Fed’s inflation target is 2 percent. As we’ve seen over the years, the Fed consistently fails to hit that target.

Right now, true price inflation is approaching an annual rate of 10 percent. It hit 9.6 percent in February, according to economist John Williams, who runs a website called Shadowstats.com. The government tells us the inflation rate in February was 2.1 percent, 7.5 percentage points lower than what Shadowstats is telling us.

The official government inflation data for March were released April 15. The Bureau of Labor Statistics reported inflation climbed 0.5 percent. That’s an annualized rate of 6 percent, but the World Bank reports global food prices have surged 36 percent in 12 months.

How can there be such a huge discrepancy? Because Shadowstats uses the government’s raw data to arrive at economic numbers as the government would have measured them in the 1970s.

Over the past few decades, the government has done things to make inflation and other economic measures look better than they really are. For price inflation, the government has removed items such as food and energy costs from the formula.

The Fed also manipulates interest rates. Banks are paying almost no interest on deposits.

As is always the case when government manipulates things, there are winners and losers in the Federal Reserve’s inflation game. Losers include savers and people who live on fixed incomes. The winners are borrowers, who get to repay their debts with cheaper dollars. The United States government, of course, is the world’s largest borrower.
 
Steve Stanek is a research fellow at The Heartland Institute in Chicago.

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