How Cabal of Wall st bankers, federal reserve, & DC get rich

Let's assume you are an everyday guy who has saved 10,000 and buys a savings bond paying 7% interest compounded annually. Your bond would be worth $19,671.51 after 10 years. Your taxes on capital gains of $9,671.51, if you live in Nebraska with 7% capital gains plus 15% federal, would be $2,127.73 leaving you a net gain of $7,543.78 in currency.

Now lets assume inflation (amount of money the federal reserve was creating for the bankers) was at 5% over those 10 years. The amount of money needed to buy the same goods as 10 years ago when you made your investment would be $16,288.95 in currency.

That reduces your actual gain in buying power to $3,382.57 in today's currency. If we subtract the capital gains taxes paid from the actual gain in buying power, your gain was only $1,254.83 and your actual capital gains tax rate was more like 63% on actual gains.

Meanwhile, the banks are receiving federal reserve notes BEFORE the inflation rolls down hill to the pool of existing currency. Is it any wonder the divide between mega-rich and the average person is growing?

Added 12/5/10

The Fed creates all bubbles and inevitable bursting of all of the bubbles, by manipulating money supply & interest rate <<< pass it on.

Although we are all debt slaves to the Federal Reserve's ability to inflate, ballooning student loans-not forgiven by bankruptcy-may violate the Constitution. Many young adults after college are working in virtual 'involuntary servitude' to pay off loans--a clear violation of the 13th amendment. Why are college loans not challenged?

If the Supreme court ruled college loans violated the 13th, at first, fewer would go to college but very quickly colleges would recognize that market forces could put them on the street unless they tighten their belts so tuition could drop. Profs would take fewer paid trips, double up in offices again, and teach more hours. Also, many skills previously learned in technical high schools, might return meaning fewer community colleges classes needed. Think of the productivity from two years of work rather than two years of classes.

Added 1/11/11 A video explanation of paper money.

What causes bubbles?

Matt Taibbi, an author I do admire, has read Cato's take on the housing bubble and written about it here in Rolling Stone. Now I doubt Rolling Stone will pick up on my humble response, but I do have a point or two to make.

• 1) Community Redevelopment Act[CRA] as originally written had nothing to do with the bubble but was a factor in Credit Default Swaps [CDS] as a hedge against loss. Banks were judged on their CRA rating and that 'forced' them to make loans in areas where a trend was showing crime, vacancies and business pulling out made them a bad risk. The buyer wasn't a risk, the house was well constructed, but if the homeowner were injured or lost their job, the home might be worthless on the market. Banks don't print money (Fed reserve aside,) so they cannot make loans of their depositors money except on sound risk.
• 2) After CDS became the norm and pushed off from the mother ship (the banks,) loans became a commodity. If a broker sold a house and wrote the loan for maximum amount, their % of commission was higher and they could actually 'sell' the loan to a CDS broker. This caused brokers to run around making second mortgages in the 10's of thousands on kitchen remodels with no concern that the loans exceeded the value of the home. Again they sold them for % profit.
• 3) On C-SPAN I have had very informed sources answer this question: If Americans were negative savers (because both Greenspan and Bernanke kept interest at 1% which discouraged savings and encouraged spending,) where did the US$s that financed all these risky home loans come from? The normal process is a saver puts money in bank at a certain interest rate and the bank loans that money at a higher interest rate on good solid 'risks' to make bucks.. But, we had no savings. The answer was the federal reserve created the money used to fuel the bubble. Its like a forest fire with lots of downed trees, branches and brush.. it burns very hot and destroys the trees.
  
• 4) So the circle was complete; the bubble grew. Greenspan or Bernanke could have (should have) raised interest rates like Volcher did to let the bubble deflate and give us several good years of growth again. The only way to deflate a bubble is to deflate it--in our case by not printing so much money and raising interest rates. The pain is hard, but its over fast. No Politician wants that. The federal reserve is very much in tune with politics and the administration in power.
• 5) Yes there was greed with flipping homes and some got caught with the hot potato when the bubble burst. There was greed in Goldman and other banks selling a faulty investment. There was greed in the loan makers who would shop the neighborhood to find a home that sold for a huge amount so they could make the loan (and their commission) higher.