The Capitalist System: Can We Make It Work?

What has happened to your money over the last 50 years? 40 years? 30 years? 20 years? 10 years?

For those of you who were not around 30, 40 or 50 years ago, you might ask, what does this have to do with me? My answer is, just wait, it will in time have everything to do with you.

The system of capitalism that has evolved over the ages, has a flaw. The flaw is in the way the Federal Government, and not just our Federal Government, has the right to print money and borrow money. Like any big business, the Federal Government needs income to provide the goods and services that it provides to its various departments. The problem emerges when the Government spends more money than it takes in. When this happens, the Government can borrow money by selling Treasury notes and bonds. Treasury Bills help the government manage its cash flow.

The central bank, our Federal Reserve Bank, is part of the system. The Fed can print Federal Reserve Notes. Take out a piece of your paper money and look at it. At the top of the bill are the words "Federal Reserve Note". The Fed operates monetary policy through its tools such as Open Market Operations (where it buys and sells Treasury Notes, putting or taking reserves into the banking system) also setting the Fed Funds Rate, that banks can borrow reserves at the discount window, and finally the Reserve Requirement, where the Fed can restrict or enhance the flow of credit. These are the basics.

Now when we have deficits over a long period of time, and there is more money in the system chasing fewer goods, or labor cost rise making it necessary to raise prices, we have inflation. Inflation over a period of 50,40, 30 or even 20 years can result in the purchasing power of your dollars declining. The house that you bought 50, 40, 30 years ago is now selling for a lot more than you paid for it. A car is selling for a lot more now than it cost 50, 40, 30 or 20 years ago. Your savings in a savings account has not kept up with inflation as you have paid income tax on the interest you have earned and yet the purchasing power of the dollars has evaporated.

How do you like the game so far? This is the game you are in, so I hope you like it. Your job is to figure out a way to maintain the purchasing power of the dollars you have put away for a rainy day or retirement. So, you invest. The problem recently is that the Congress has passed new laws that have made fraud by Wall Street legal. Now, how do you like the game? This is the game you are in, so again I say, you better like it. If you don't like the way the game is being played, you better get involved in changing the rules of the game. That means you are going to have to write and talk to your Congressional representatives and persuade them to change the game, or, just level the playing field so you have a fighting chance.

I have written before that this is not rocket surgery. This stuff, money & banking (monetary policy), Federal spending (fiscal policy) and the Securities & Exchange Commission, control your life and your future. It is not left or right, it is right down the center. People need to learn the capitalist system in the United States and make the changes to make it work for all the people. Not just the alliance between Wall Street and Washington.

Stay tuned.