In response to pressure from Wall Street, the White House and central banks in Europe, the Federal Reserve last week drastically cut interest rates for currency swaps to benefit troubled European banks. This will flood world markets with more dollars and will soon mean rising prices for every American at the grocery store. This extra liquidity will temporarily ease the cash crunch for irresponsible bankers, but in the long run it will make the situation much worse for consumers all over the world. Equities markets registered big gains at the news, but only for a day. Make no mistake – this is not capitalism, and this is not how a free market operates. In a free market, bankruptcies happen, even to large banks. We must remember, free markets are the true and best regulators of financial mismanagement.
By contrast, under our current form of special interest corporatism certain businesses are granted too-big-to-fail status and are never allowed to go bankrupt. They keep profits generated during the good times generated by the Fed’s monetary inflation, yet their losses are socialized through inflationary bailouts. This means you and your family eventually pay for the Fed’s decisions because every dollar you earn is worth less. Few people make the connection that they have enriched bankers in Europe through doubling and tripling prices on milk, eggs, gasoline, and clothing, but that is exactly what is happening. The increased pace and size of these types of desperate financial maneuvers means price inflation will hit sooner and far too fast for wages to keep up. This is how the middle class gets wiped out, as has happened so many times in the past when fiat money fails.
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