Authored by George Ford Smith via The Mises Institute,
“My fellow Americans, ask not what your country can do for you. Ask instead what your country has been doing to you and is likely to keep doing to you for as long as it can buy with fiat money the votes of a majority.”
– Gary North, “History Revisionism – High Priests of Woodrow Wilson’s Covenant”
Gary North’s observation, though made in 2008, rings truer than ever. He pointed out that we’ve been embroiled in “one long war since 1917,” a conflict continuously fueled by an indispensable, yet often unseen, accomplice: Fed fiat money. But what exactly does this mean for you, me, and the very fabric of our society?
The Cost of Government: A Never-Ending Tab
Governments, unlike productive businesses, create nothing. Yet, everything they do costs money. For 2025 alone, the US government plans to extract an astonishing $5.4 trillion from taxpayers and dollar-holders. But here’s the kicker: it expects to spend $7 trillion, leaving a gaping $1.7 trillion “rolling deficit.” The ensuing battles are always about who pays, not about whether the current system should exist at all.
This endless spending spree became truly entrenched when Woodrow Wilson, in his quest to “impose democracy on the world,” laid the groundwork for two powerful wealth-extraction mechanisms in 1913: the income tax and the central bank. The income tax takes directly from your earnings. The central bank, however, operates more subtly, as Copernicus observed way back in 1526:
…is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.
Keynes echoed this sentiment in 1919 with his famous “one man in a million” declaration:
There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
The Federal Reserve: America’s “Biggest Scam”?
Americans pride themselves on their shrewdness. “Fool me twice, shame on me,” we say. Yet, most have missed what many consider the biggest scam of all: The Federal Reserve System.
Why the blind spot? A primary reason is the widespread belief that market economies are inherently fragile, vulnerable to forces only the state and its central bank can tame. Experts like former Fed Chair Ben Bernanke often argue that markets sometimes fail a “fundamental law of trade” (production buys production, or Say’s Law) and thus require constant supervision and intervention.
A Historical Misread?
When the economy began to collapse in August 1929, the Fed was at a loss. But they could have looked to the Depression of 1921 for guidance. Back then, the government largely stood aside as the Fed tightened and then eased. As one economist noted, there was “nothing remotely like a fiscal stimulus package, a TARP program, or even a QE policy designed to prevent economic collapse.” Deflation, often painted as the villain of the 1930s, actually cured the earlier slump because prices had been inflated.
The Illusion of Expertise and Transparency
Today, many economists, particularly those from state-funded universities, treat the Fed as an indispensable institution. Their training often includes the belief that the Fed’s Federal Open Market Committee (FOMC) valiantly undertakes the “formidable task” of setting interest rates to promote full employment and low inflation. It’s a superhuman challenge, they argue, and who could do better?
The Kansas City Fed even claims that “transparency is a fundamental principle of central banking that supports accountability.” Yet, for most people, the Fed’s operations remain largely a mystery. And frankly, this opacity serves its purpose well.
How the Fed Operates (and Manipulates)
It’s often said the Fed “prints money” when it lowers interest rates. While true, this simple phrase obscures a complex, convoluted process designed to achieve specific economic outcomes.
- The Federal Funds Rate: This is the interest commercial banks charge each other for overnight loans. It’s a benchmark that influences everything from mortgages and car loans to credit card rates and savings accounts.
- FOMC Meetings: The FOMC meets at least eight times a year, using reports like the Beige Book to decide on the Federal Funds Rate. Lowering the rate generally means the Fed will inject more money into the economy to achieve its desired “consumer price increases.” Conversely, if it deems prices too high, it sells securities, pulling money out of the system.
- Interest on Reserve Balances (IORB): The interest the Fed pays banks for holding reserves with it. A high IORB can incentivize banks to keep money at the Fed rather than lending it out, influencing market liquidity and rates.
These tools are crucial for manipulating market prices. Though sometimes actual market prices, driven by innovation like Moore’s Law in computing, can defy the Fed’s intentions, consumers usually benefit when innovation outpaces monetary debasement.
The Arsonist as Firefighter: The Redefinition of Inflation
Perhaps the most insidious aspect of the Fed’s operation is its mandate: it sets a target of 2 percent inflation. It defines inflation as “the rate at which the price of goods and services increases over time.” In essence, its job is to increase prices. As Chairman Powell explicitly stated:
In conducting monetary policy, we will remain highly focused on fostering as strong a labor market as possible for the benefit of all Americans. And we will steadfastly seek to achieve a 2 percent inflation rate over time.
Think about that for a moment. The Fed isn’t merely reacting to inflation; it’s actively pursuing a steady 2 percent depreciation in the purchasing power of your dollar, year after year. Since 1982, consumer prices have risen approximately 235 percent! This policy punishes savers, people on fixed incomes, and even entrepreneurs by reducing the pool of investment capital. It’s a predatory game, but it’s official Fed policy. Inflation, in this context, becomes a mechanism for wealth transfer, orchestrated by interest-rate juggling.
From Cause to Effect: A Crucial Shift in Meaning
As Michael F. Bryan’s “On the Origin and Evolution of the Word ‘Inflation’” (published by the Cleveland Fed) highlights, the definition of inflation has fundamentally changed:
What was once a word that described a monetary cause now describes a price outcome. This shift in meaning has complicated the position of anti-inflation advocates. As a condition of the money stock, an inflating currency has but one origin—the central bank—and one solution—a less expansive money growth rate. But as a condition of the price level, which may have originated from a variety of things (including a depreciating dollar, rising labor costs, bad weather, or a number of factors other than “too much money”), the solution to—and the prudence of— eliminating inflation is much less clear.
The Keynesian revolution further cemented this change, separating the price level from the money stock and making inflation synonymous with any price increase, regardless of its monetary origin. This redefinition effectively shields the Fed from public scrutiny when prices inevitably rise.
Conclusion: The Invisible Tax
The modern global fiat regime, truly solidified after the “Nixon Shock” in 1971, might not have been an instant disaster, but its long-term effects are clear. Fiat money is a politician’s best friend. It enables an invisible tax through the institutionalized depreciation of currency, allowing governments to spend without explicit direct taxation and fund their perpetual interests, especially war.
Until we understand this fundamental mechanism, we shouldn’t expect those in power to willingly part with their most potent tool for control and wealth transfer. The tyranny, it seems, will continue as long as fiat money reigns.
Source: Original Article
