Productivity in the US economy has been sluggish this past quarter – it rose by only 0.4%, a minor improvement over the 0.3% in the last quarter of 2017. There isn’t a lot of discussion about a sluggish economy but according to Euro Pacific Capital CEO Peter Schiff, the monetary policies being pushed by the Fed to create “easy money” could have a damaging effect on our economy in the long-term.
The Federal Reserve is printing money to provide air for financial bubbles in real estate and stocks instead of genuinely supporting the real economy. According to Schiff, the Fed is trying to support the growth of the economy, at the risk of stifling legitimate economic growth that would help develop Main Street.
This is causing a phony recovery that is perfect for people who own a lot of stocks but does very little for anybody who works for a living. Wages have not kept pace with the rising cost of basic necessities and quite a number of people have lost full-time employment and are working part time; and this leaves them with a lot less purchasing power.
Inflation is a looming threat and if the Fed continues to dish out easy money, then its only a matter of time before we start to experience the pinch of modern inflation. According to Schiff, the flow of money will continue to expand, and one of the effects will be rising prices. Rising productivity levels might keep prices from rising too fast but not for long.
Should we return to the constitutional monetary policy?
Before President Nixon broke the dollar’s link with gold, every single dollar was backed by gold, and any central bank in the world could go to the Fed and present US dollars for gold (the value in 1971 was $35 for 1 ounce of gold). However, all this changed when the government reneged on the promise to back up our dollars with gold. Since then, our system of credit has been under the control of the Fed.
Without the backing of gold, the US dollar has been in decline in the ensuing 45 years and we’ve seen a lot of crises in the recent American economic history. Credit inflation has come about as a result of this change, and now as the Fed induces inflation, the average worker doesn’t realize that even if their wages rise, their salaries won’t purchase as much as they used to.
When prices of goods are measured in terms of a person’s income, we see that today’s incomes have risen much higher than they used to be. It demonstrates the fact that the blue collar worker – who’s also the backbone of the economy – has been falling behind since the late 1960s and the monetary mismanagement and failures of the Fed will only continue to create a rift between the wealthy upper class and the average Joe.
The US dollar has failed to serve as a unit of economic measure over the last few decades and this in itself is evidence of the negative impact resulting from the years of the Federal Reserve being shortsighted and serving up monetary policies that make life harder for most Americans. When inflation robs workers from the benefit of higher productivity, it’s still a form of inflation tax – and it’s bad for the economy.