In the wake of yesterday’s blood bath in the stock market, the so-called financial “experts” are all over TV throwing around their misguided diagnosis. The fashionable opinion of the day is to blame China, tell everyone not to panic and that it’s just a small correction and everything is fine. Very few “experts” are willing to point a finger at the true culprit that has been distorting and artificially propping up a sick economy for decades—the Fed.
For my friends who are unfamiliar with the Fed, here’s a brief summary from Wikipedia with my commentary in parenthesis:
“The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907 (which was manufactured by the financial elite for justification to pass the Federal Reserve Act). Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved. Events such as the Great Depression in the 1930s (which was caused by the Fed and prolonged for over 25 years because of the Fed’s policies) were major factors leading to changes in the system.”
What does Wikipedia fail to mention?
One of the biggest enemies to a free society is a central bank. The founders were vehemently against a national bank because they knew that a handful of individuals put in charge of the money supply would be able to control the interactions of the people and financially swell the government. As Thomas Jefferson acknowledged, “I believe that banking institutions are more dangerous to our liberties than standing armies.”
In 1913 the US, in secret, created the Federal Reserve, the first national bank. It was created with the goal of restoring financial stability in the US economy. Obviously, it has failed miserably.
Since the birth of the Fed the dollar has lost over 95% of its value and it has created countless boom-bust cycles that have been slowly swallowing up the Middle-Class since WW2. The Federal Reserve’s inflationary policies (printing money out of thin air) is a hidden tax–reducing the purchasing power of our money–which is imposed silently on the American people. The more dollars floating around in circulation the less our dollar is worth.
Writer Erik Voorhees points out:
“The Federal Reserve System is fraudulent. Whatever its stated purpose, its effective purpose is to create a mechanism of deficit spending by politicians, through the insidious invisible taxation of monetary debasement (aka inflation). With printed money, the Government can buy services for its voters before the effects of inflation are felt. It is then the voters whose money buys less the following year, as the new money has raised prices, and they are none the wiser.”
Today, in the name of financial recovery, the Fed’s perverted policies force interest rates to the floor as to “stimulate” a spending spree. Sure, it works for the short term, but what it truly does is punish honest savers who get zero return on their savings. So instead of saving people spend and rack up obscene debt. The zero-interest rate policies also cause a massive misallocation of resources by business owners. This causes false prosperity (boom) across the economy, which in time, is followed by a bust. This is what we’re seeing now. And it’s going to get uglier.
Former Congressman Ron Paul as been trying desperately to shed light on this fact for many years. And he also understands that “though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state.”
The mere fact that Trump, like all US politicians and presidential contenders, are solely blaming China for the market plummet is just another fabulous sign of how much trouble we’re in. What eludes the political establishment is the basic understanding of macroeconomics. As usual, no one’s looking at the true culprit—the central bank and its expansionary monetary policy. And if you aren’t able to comprehend the problem you’re unlikely to present any logical solutions.
What is needed?
The Fed doesn’t need to do anything (except go away forever). Allow the correction. Let the system flush out the bad assets. Quit tinkering with interest rates and let the market determine the price of money. No more QE (money printing).
In short, let the economy work naturally. This approach worked well in the economic downturn of 1921. But of course it’s rarely studied or talked about by the imbeciles of finance.
Jim Grant, in an excellent interview on CNBC yesterday, speaking on the market collapse rightly pointed out that “we have too much of something, which is financed by an excess of credit or debt. That, to me, is the essential backstory to this morning’s difficulties. It’s the mispricing of asset values, led by central banks who think that by inflating or lifting up stocks, bonds, real estate, they will thereby engender prosperity…
“In capitalism there is meant to be failure. It’s like the forest floor. There is life, there is regeneration, there is death. Without that, what you find is a bunch of dead fern.”
Anyone who is serious about living in a free society with real prospertiy must realize that central banking is the enemy. A government that has its own bank in its back pocket to print gazillions of dollars at will to finance whatever war they want to wage, or pay for whatever program they want to start, will continue to swell in size. Wages will remain stagnant as they have been for decades, and our freedoms will continue to diminish along with the purchasing power of our hard earned money.
End the Fed.