Vin Suprynowicz

Prompted in part by government interventions including the Community Reinvestment Act of 1977 — which required banks to make riskier loans to less credit-worthy borrowers to avoid charges of racist “red-lining” — America’s banks and mortgage companies created new sources of high investment return in recent decades. Home mortgages — both the secure and the less secure — were bundled up, sliced and re-sold like baloney.

The riches seemed to flow from nowhere. It reached the point where nearly everyone seemed to have a child or spouse or girlfriend — charming, yes, but not someone you’d expect to become a millionaire based on business acumen or educational attainment — driving around dressed to the nines, operating a real estate business out of a couple of file drawers in the back of a fancy new sports car, expressing amazement that you, too, weren’t getting rich flipping homes and condos, many before they’d even been built.

Even when the run came to an end, there was still a time when it appeared the problems could be contained to that part of the financial world that specialized in “sub-prime loans.”

Then, on March 14, the Federal Reserve Board agreed to let JP Morgan Chase secure emergency financing from the central bank to rescue from collapse the venerable Wall Street firm Bear Stearns. Two days later, the Fed agreed to make cash and credit available for JP Morgan to actually take over Bear Stearns.

Also on March 16, the Fed, in what The Associated Press called “a bold move,” agreed for the first time to let big investment houses get emergency loans directly from the central bank. This is “the broadest use of the Fed’s lending authority since the 1930s,” The AP reported.

By Thursday, March 20, the central bank reported other big Wall Street investment companies — that means Goldman Sachs, Lehman Brothers and Morgan Stanley — were taking advantage of the Federal Reserve’s unprecedented offer to secure emergency loans, “part of a major effort by the Fed to help a financial system in danger of freezing,” The AP reported.

On Wednesday alone, lending reached $28.8 billion, according to the Fed report.

Separately, the Fed said it will make $75 billion of Treasury securities available to big investment firms the week of March 24. The Fed will allow investment firms to borrow up to $200 billion in safe Treasury securities by using some of their more risky investments as collateral.

Did you catch that last bit? It’s like saying you’re not really handing your no-good brother-in-law $10,000 to cover his bad debts — instead, you’re “loaning” him the ten grand, allowing him to put up as collateral 10,000 dollars in Parker Brother Monopoly board-game money.

What is underway is a mad scramble to keep afloat both borrowers who hold title to homes they can’t afford, and lenders that would likely fail if they simply called all those bad loans and found themselves the proud owners of thousands of boarded-up homes now worth half what everyone thought they were worth.

The Fed seeks to keep home prices from falling as far as they otherwise would. That will leave many homes mis-allocated to those who cannot afford to maintain them, whereas a tumble of prices to sustainable levels would make those houses affordable to young couples who actually have jobs and savings for down payments.

But whether the plan works or not, there is one other price to be paid.

Where is the Federal Reserve getting all these new billions of dollars? They’re printing them, of course. Or — this being the modern age — tapping them into existence as electronic data entries.

Now things get interesting. The Fed’s policymaking committee said in an official statement March 18 that “uncertainty about the inflation outlook has increased.”

“Fed Chairman Ban Bernanke and his colleagues have said there is almost no home-grown inflation — the kind driven by a too-tight job market, for example — in the economy,” The Washington Post reported March 18. “Rather, they view the increases as coming from rising prices for food and energy on global commodity markets. Bernanke has said he expects prices for food and energy to level out this year. … If that proves correct, it would dampen inflation.”

And that, is nonsense.

The managers of the Fed pretend inflation cannot be accurately predicted — they must wait to see what happens to food and energy prices before they know.

But inflation — the hidden tax, the tax that sneaks into our safes and bank vaults and renders our savings worthless — is not caused by rising prices. Rising prices are caused by inflation.

Inflation refers to an increase in the money supply. Inflation is caused by those who print more money — which is why the nation had effectively zero inflation from 1791 to 1932, when the supply of dollars was sharply limited by pegging the currency’s value at fixed weights of gold and silver.

Mr. Bernanke knows precisely the current rate of inflation in the U.S. dollar — unless we’re to assume he doesn’t know how many more dollars his outfit is ginning up every month (one checks something called the “M3,” which the Fed stopped publishing last year, on the grounds the peasants no longer have any need to see it.) Which, for the record, would be gross negligence.

Those who follow such things report that — BEFORE last week’s decision to loan the investment banks all the new billions they need — the Fed was creating new dollars at an annualized rate of 16 to 18 percent per year.

Unless you expect to get a 16 to 18 percent raise this year, it’s no mystery who’ll really pay for the investment-bank bailout.

We will.

Now THAT’s Sen. Obama’s “economic system that favors the few over the many.”

So why is it no presidential candidate other than Ron Paul — and that certainly includes Sen. Obama — has called for elimination of the Federal Reserve Board, with a return to gold and silver money?