Inflation, Deficit Spending . . . What Does it All Mean?

Inflation, Deficit Spending . . . What Does it All Mean?
Vol: 55 Issue: 1 Saturday, April 1, 2006

Nearly every week last month, the Dow Jones industrial average, the Standard & Poor’s 500-stock index and the Nasdaq composite index set three-, four- or five-year highs.

For the quarter that ended Friday, the Dow and S&P 500 were each up more than 3 percent, while the Nasdaq was up more than 6 percent.

With all the good news, there are still a few worrisome trends. The numbers indicate that consumer spending growth is down, and new orders for US factories failed to meet analyst expectations.

The Commerce Department said consumer spending rose just 0.1% in February, just above market expectations for an unchanged reading, after warm weather fueled a January shopping spree. Personal income climbed 0.3%, just below Wall Street forecasts for a 0.4% rise.

The Federal Reserve raised interest rates for the fifteenth time since 2004, slowing inflation from 3.1% in January to 1.8%, and suggesting the Fed may leave interest rates alone for a while.

So, it all seems good. But what does it all mean? How can the Federal Reserve control things like inflation and deflation by manipulating interest rates?

When you get right down to it, how our economy works is a mystery to most people. Watch the business reports on the news and the talking heads will tell you that the 1990’s economic boom was in response to Bill Clinton’s policies, whereas the economic downturn in the 21st century is Bush’s fault.

But it is the Federal Reserve that actually does all the economic manipulating. The 1990’s would have boomed if Howdy Doody had been in the White House.

The post 9/11 economic downturn would have taken place even if Clinton had served two more turns.

Everybody is talking about the deficit and how bad it is, but the economy didn’t tank until America balanced the budget in 2000. And it didn’t rebound until we resumed our deficit spending policies.

Contrary to conventional wisdom, the most powerful man in the world isn’t the President of the United States.

It’s the Chairman of the Federal Reserve.


There is a vast discrepancy between what the economic numbers show and the way they are interpreted. For every positive economic indicator, there is a partisan spin doctor waiting somewhere in the wings to explain why that positive indicator is really an indicator of some ‘underlying fundamental’ that is failing beneath the surface.

Our economy and how it works is a mystery to most people, and that is what makes it so easy to get confused. So confused, in fact, that people are actually mounting campaigns to repeal tax cuts and raise taxes to ‘pay off the deficit’ – without ever understanding what that would mean.

The United States operates on a ‘deficit’ economy, and it has ever since the passage of the Federal Reserve Act in 1913 and the confiscation of US gold in 1933. Prior to that, the US had operated as a ‘barter’ economy.

It is the ‘barter’ economy that most Americans believe is in operation today, and that is the fundamental flaw that gives spin doctors the green light.

In a ‘barter’ economy, something of value is exchanged for something of value. To have value, it must have substance, it must be acceptable in exchange for goods and services to the general public, and its supply must be finite — that is to say, it has to be sufficiently rare as to maintain its value.

In the US economy, the Currency Act of 1793 set the value of American currency as a weight of gold based on the Dutch unit of measure called the ‘Thaler’ — what we now call a Troy ounce. The ‘thaler’ became Americanized as the ‘dollar’ and it was a unit of measure for a substance of value.

With the confiscation of gold in 1933, the Gold Standard was repealed and replaced by the less-valuable Silver Standard. Suddenly a ‘thaler’ was not gold, but a weight of silver.

The Federal Reserve began issuing dollar bills called ‘Silver certificates’ and declared them redeemable in silver. These certificates of weight were replaced in 1963 by the Federal Reserve Note which promised redemption in ‘Lawful US Money’.

Of course, the Currency Act of 1793 declared one ‘thaler’ of gold to be ‘Lawful US Money’ — and has never been repealed by Congress. So when people demanded redemption of their Federal Reserve Notes in ‘Lawful US Money the face of the note was changed to read, “This bill is legal tender” — in effect, declaring a weight of a substance to actually BE the substance it is supposed to weigh.

Of course, it was theft, remains an unpunished theft, was perpetrated by the money trust that controls the Federal Reserve (which is neither ‘federal’ nor is it a ‘reserve’) and made possible the very thing the Fed was ostensibly created to prevent — inflation, deflation, recession and depression.

But it is a fait accompli, and our economy now depends on it. Turning our economy back from a debit-based economy to a barter economy is as possible as turning a pickle back into a cucumber.

A debit-based economy REQUIRES high deficits to make it work. Investment, production and job growth DEPEND on high national debt. Reducing the debt weakens the overall economy.

By way of analogy, let’s take a family making, from all sources, about fifty thousand a year. Take that family’s credit away from them. No credit cards, no loans, cash only.

What kind of car can they afford? They would have to save up to buy a new car. What about their housing? How long would it take YOU to save up enough to buy your own home for cash? What about that new fridge? No credit cards, no revolving credit, just cash.

A family making a thousand dollars a week without credit would be just getting by. Suppose we are talking about a family making $100,000 per year, about two thousand dollars per week, and a member of the American ‘rich’?

What kind of car would THEY drive? It would still be unlikely to be new. They could probably save up and buy themselves a house in about 10 years. But it would be a starter home. They could buy a new fridge or stove or TV set, but that might put a dent in their home savings account.

Give them back their credit cards, revolving charges, mortgage and car loans, and they are living the American Dream. The family making a hundred thousand a year now lives in a nice home in the suburbs, commutes to work in an expensive SUV, and has both a new fridge AND a nice retirement savings account.

The family making fifty grand a year now drives a nearly-new mini-van, has a nice, but smaller, home in a less expensive neighborhoods and sometimes still has to choose between retirement contributions and big-ticket items, but, thanks to a debit-based economy, lives better than if they would making twice as much but paying cash for everything.

It is in the interest of the banking and lending institutions to continue to lend people money against their accumulated equity because, a) it increases their profits; and b) the collateral is ‘real’ property, whereas the ‘money’ is an illusion — in reality, nothing but a bookkeeping entry.

America’s economy MUST be in debt in order to prosper. If you doubt me, look back to when we finally balanced the budget and paid off the national debt in the late 1990’s. The economy began to flag and sputter into recession two full quarters before the end of the Clinton administration.

The attacks on 9/11 and the wars in Iraq and against Afghanistan have forced the government to pull its credit cards out of retirement and — Voila! — jobs get created, personal income increases, flagging industries like manufacturing post their best gains in twenty years, and the government starts offering tax cuts (that further reduce any chance of a surplus) — and the numbers speak for themselves.

That’s how things work. Learn to live with it. The value of US currency today is based on America’s future earnings potential and its collateral assets, just like your credit card limits.

The higher your credit card balances get, the more credit increases you are offered. You then buy more, which creates demand for increased production, which creates demand for new jobs, etc.

It works the same way looked at from the national level. It is, at its core, an insidious, evil system that will one day result in a global economic catastrophe. But not yet.

The global economic system was constructed based on the same economic model of debit and credit to a particular purpose. Its construction has taken nearly a century, but it is now in place.

For the first time in human history, thanks to centralized banking, technology and the speed of the internet, it would be possible for a single authority to control it all. The Bible says that authority will be given to the antichrist in his time, for the purpose of fulfilling Bible prophecy for the last days.

According to Scripture, by the mid-point in the Tribulation, the antichrist’s government will have taken the existing, centralized system and turned it into his most powerful weapon. He will combine his control of the economy with his control of the global religious system and will use both to demand worship from those living during that time.

“And he had power to give life unto the image of the beast, that the image of the beast should both speak, and cause that as many as would not worship the image of the beast should be killed. And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads: And that NO MAN MIGHT BUY OR SELL, save he that had the mark, or the name of the beast, or the number of his name.” (Revelation 13:15-17)

Never before in human history was such a thing possible. Today, the system now in place requires such control on the national level. The Fed Chairman is America’s economic supervisor.

A word from him can cause the markets to go up, or go down, or collapse, should he wish it. For the record, I am NOT identifying some Federal Reserve Chairman as the antichrist. Every nation in the global economic system has a similar central banking scheme, and a central banker.

Control the central bankers (a relative handful of individuals, really) and, BINGO! — John’s scenario would become a reality.

The system stinks. But it is the only one we have, and I, for one, and not eager to endure the chaos and catastrophe that would result in trying to change it now. Especially since it is a necessary part of the overall last-day’s scenario.

But while we might not be OF the world, we are IN it, and while we are in it, we have little choice but to function according to the system’s rules.

Our mission at the Omega Letter is to keep you informed of what is really happening in the world, and how it all comes together in light of Bible prophecy.

The system is what it is, which is also why it is so easy to spin. It is also part of a greater Design outlined in Scripture by its Designer, according to His purpose, for one generation, somewhere in time.

We are that generation. We are charged with ‘occupying until He comes’ — to be the salt and light of the earth, despite the evils of the system controlled by the ‘prince and power of the air’.

In fact, as long as we are here to influence the system for good, it cannot proceed further toward its appointment with destiny. That’s why politics matter, and why they make up so much of the focus of your Omega Letter.

The partisan war in this country is part of a much wider spiritual war that eventually envelops the global economy as well.

It is all part of a Plan and a Promise. We are watching the stage being set for the unveiling of the antichrist, but we have the Blessed Hope that the Rapture comes first.

“Wherefore comfort one another with these words.” (1st Thessalonians 4:18)

This entry was posted in Briefings by Pete Garcia. Bookmark the permalink.

About Pete Garcia

Christian, father, husband, veteran, pilot, and sinner saved by grace. I am a firm believer in, and follower of Jesus Christ. I am Pre-Trib, Dispensational, and Non-Denominational (but I lean Southern Baptist).

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