Are conspiracy theorists right about the Federal Reserve weakening the dollar?

Question

It certainly does appear that all of the money that the Fed prints and puts into circulation does increase supply and makes each dollar in circulation worth less. Then we have to pay these crooks back the money plus interest, when it isn't their money to begin with. I think the good days are over for America. It can only get worse from here.

I agree, Truth Wizard.

Laissez Faire
Gold has gone up in value but the dollar has gone down in value. Explain that.

Answer 1

The Fed's ability to effect the value of the money is a simple fact and not a conspiracy theory...

This should have been taught in high school economics.

Its called "monetary policy" and is differentiated from "fiscal policy," that is, government budgeting.

Answer 2

That's an incomplete picture. If we inflated the money supply by exactly the amount of population increase + productivity gains, we'd have 0% inflation.

I'm not sure where you are getting the idea we have to pay them interest back too.

How you can be so negative when the economic news out there is pretty good, is beyond me. Unemployment is at a low rate. Wages are up. The federal budget deficit is going down each year for the last 3 years. Tax rates are down and tax revenues are up. The Real GDP has been up 3.8 and 3.9% over the last 2 quarters. Low inflation.

Yes, we have some economic problems. We've got a foreclosure problem from those people foolish enough to take out ARMS when fixed rates were at historic lows. Oil is high. But we are nowhere nearly as bad off as we were during the late 70's or early 90s. You may be too young to remember the late 70s. Gas shortages. Double digit inflation. Stagnant economy. Even higher oil prices.

And in case you think going back to Gold is the answer, Gold was selling for about $800 in 1979 or 1980. It is now selling for a little over that now, 27 years later. If gold were to keep up, it should be worth almost 3 times that, being inflation has eaten away the value of the dollar in that time.

UPDATE - about gold. $800 much weaker today's dollars buy the same amount of gold as $800 much stronger dollar from 27 years ago buys. Explain that!

Answer 3

Conspiracy theorist can be pretty wacky and often mix fact and fiction. As long as we're into generalizations, the main problem I have with conspiracy theorist is they shape the "facts" to fit their agenda. This is a great example; there are far more logical and direct reasons for the weakening dollar but anti-Fed conspiracy theorists will ignore those.

Yes, since the Fed is responsible for monetary policy, then it would fair to hold them at least partially responsible. But that is a side effect, not a goal. The Feds main mission is to supply the economy with sufficient money to operate optimally but not so much as to cause undue inflation. A weak or strong dollar is considered lower priority.

However there are far bigger culprits for the weaker dollar.

Think about the huge deficit the government runs. About half the U.S. debt is purchased by foreign entities. This sends a lot of dollars overseas which cheapens their values against other currencies.

Another big factor is the rise of oil prices which sends even more dollars overseas. (For more details on that, see http://economics.about.com/b/2007/11/06/why-higher-oil-prices-cause-the-us-dollar-to-fall.htm?nl=1 )

Some of your points are not accurate:

- "Fed prints (money) "- thats a function of the Bureau of Engraving

- "we have to (pay the money back)" - Not really. The T-Bills the Fed buys to back currency can be considered 'permanent' (i.e. does not have to be paid back)

- "...with interest" - Yes, the Fed receives interest on the T-Bills but, by law, all Fed income after expenses is returned to the Treasury. That means 90%+ of the interest paid by the Treasury is returned.

- "Gold has gone up in value but the dollar has gone down in value" - So? The purpose of money is to generate economic activity. A single $1 generate about $7 in economic activity in the course of a year. In fact, most economist agree that a little inflation is a good thing as it acts like a tax on idle money, prompting people to invest or spend. if the dollar was in gold, or otherwise encouraged people to hoard it versus spend and invest, it would be a drag on the economy.

Answer 4

No, conspiracy theorists are never right about anything.

However, with continued low interest rates, it does have the effect of loosening money supplies. But there is more to it than that.

And if anybody believes that Congress controlling the presses will result in better monetary policy, then they're smoking some good weed.

Answer 5

No one wants inflation. It is not a conspiracy, it is known. The Federal Reserve is owned by the member banks and will protect the banks.

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