Should We Kill the Fed?
For the financial crisis that has wiped out trillions in wealth, many have felt the lash of public outrage.
Fannie and Freddie. The idiot-bankers. The AIG bonus babies. The Bush Republicans and Barney Frank Democrats who bullied banks into making mortgages to minorities who could not afford the houses they were moving into.
But the Big Kahuna has escaped.
The Federal Reserve.
"(T)he very people who devised the policies that produced the mess are now posing as the wise public servants who will show us the way out," writes Thomas Woods in Meltdown.
Already in its sixth week on the New York Times best-seller list, this eminently readable book traces the Fed's role in every financial crisis since this creature was spawned on Jekyl Island in 1913.
The "forgotten depression" of 1920-21 was caused by a huge increase in the money supply for President Wilson's war. When the Fed started to tighten at war's end, production fell 20 percent from mid-1920 to mid-1921, far more than today.
Why did we not read about that depression?
Because the much-maligned Warren Harding refused to intervene. He let businesses and banks fail and prices fall. Hence, the fever quickly broke, and we were off into "the Roaring Twenties."
But, the Fed reverted, expanding the money supply by 55 percent, an average of 7.3 percent a year, not through an expansion of the currency, but through loans to businesses.
Thus, when the Fed tightened in the overheated economy, the Crash came, as the stock market bubble the Fed had created burst.
Herbert Hoover, contrary to the myth that he was a small-government conservative, renounced laissez-faire, raised taxes, launched public works projects, extended emergency loans to failing businesses and lent money to the states for relief programs.
Hoover did what Obama is doing.
Indeed, in 1932, FDR lacerated Hoover for having presided over the "greatest spending administration in peacetime in all of history." His running mate, John Nance Garner, accused Hoover of "leading the country down the path to socialism." And "Cactus Jack" was right.
Terrified of the bogeyman that causes Ben Bernanke sleepless nights—deflation, falling prices—FDR ordered crops destroyed, pigs slaughtered, and business cartels to cut production and fix prices.
FDR mistook the consequences of the Depression—falling prices—for the cause of the depression. But prices were simply returning to where they belonged in a free market, the first step in any cure.
Obama is repeating the failed policies of Hoover and FDR, by refusing to let prices fall. Obama, with his intervention to prop up housing prices and Bernanke with his gushers of money to bail out bankrupt banks and businesses are creating a new bubble that will burst even more spectacularly.
The biggest myth, writes Woods, is that it was World War II that ended the Great Depression. He quotes Paul Krugman:
"What saved the economy and the New Deal was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy's needs."
This Nobel Prize winner's analysis, writes Woods, is a "stupefying and bizarre misunderstanding of what actually happened,"
Undoubtedly, with 29 percent of the labor force conscripted at one time or another into the armed forces, and their jobs taken by elderly men, women and teenagers with little work experience, unemployment will fall.
But how can an economy be truly growing 13 percent a year, as the economists claim, when there is rationing, shortages everywhere, declining product quality, an inability to buy homes and cars, and a longer work week? When the cream of the labor force is in boot camps or military bases, or storming beaches, sailing ships, flying planes and marching with rifles, how can your real economy be booming?
It was 1946, a year economists predicted would result in a postwar depression because government spending fell by two-thirds, that proved the biggest boom year in all of American history.
Why? Because the real economy was producing what people wanted: cars, TVs, homes. Businesses were responding to consumers, not the clamor of a government run by dollar-a-year men who wanted planes, tanks, guns and ships to blow things up.
"The Fed was the greatest single contributor to the crisis that unfolds before us," Woods writes of today, and "more dollars were created between 2000 and 2007 than in the rest of the republic's history."
After 9-11, the Fed kept interest rates low—in one year as low as 1 percent. That money flooded into the housing and stock markets. And in 2008, as the Fed tightened, the bubble burst.
Now the money supply is again expanding, to rescue us from a crisis created by the previous expansion. Of Nicholas Biddle's Bank of the United States, the great Andrew Jackson was eloquent.
"It has tried to kill me," he said. "But I will kill it." And he did.
Should not this creature from Jekyl Island, for all its manifold crimes and sins against the republic, also be summarily put to death?
COPYRIGHT 2009 CREATORS SYNDICATE INC.
Entries(RSS)
Should we kill the Fed? The correct answer is an emphatic YES. If that cannot be done, then we call in independent auditors, like Arthur Andersen. No That won't work either. And bad publicity about the private owners like the Rothschilds, Warburgs, and Lazard Freres, has made scarcely a dent.
The problem is gold in Fort Knox vs. the total dollars in circulation would drive up the price to $40,000 per ounce.
To hear slim tell it the Fed is a construct of fascists and Muslims.
The flavor-aid is being passed around boys so take a big gulp.
The Fed, it should have been rubble years ago.
McCallum
It cannot be killed fast enough!
It is extremely naive to think that merely killing off the Fed will amount to more than a momentary blip in the New York bankers' control of the money supply and credit of the country. Entirely too much attention has been devoted to the Fed. It is merely a more centralised version of Lincoln's national banking system which was established in 1862. In both cases, the government granted to favoured or bribe-ready private bankers the control of the currency.
Any worthwhile reform will need to be far more fundamental than merely disestablishing the Federal Reserve Board. Do you think the bankers do not have other tricks up their sleeve as well as the capacity to buy a Congressional majority with what is to them chickenfeed.
Clyde Wilson has it and if I am not stretching his point too much, it seems to be that people are more important than systems. Abolish the Fed? Ok with me. What will replace it and who will control it?
Be careful what you wish for and be careful how you word it. If the masses are whipped into a frenzy over "ending the Fed", as the chant goes, all it would take is a little sleight of hand to deflate the angry rabble and put us right back at the start.
Good people can make bad systems work OK. Bad people will screw up the best system.
Amen to Professor Wilson and don't stop there. Congressmen Wright Patman, who chaired the House Banking Committe for three decades and came within minutes of seeing the Moneychanger's High Temple on Constitution Ave. NW aka the Eccles Building put up for DC Sheriff's when he finally had a belly full of the slippery bastards claiming they were a private entity when he tried to reign them in, had it right. Localized producer economies and small busniess were the last best hope for this country.
Problem is the Eisenhower administration and many of the New Frontiersman cut off at the knees time and again. Why don't we get serious and outlaw interstate banking altogether and reimplement usury laws, as Steve Sailer posted on recently, while we're at it? I guess because, as the front page of the "Financial Times" ominoulsy warned today, that would be the road to a second French Revolution.
And put the feckless FDIC and SEC down with 'em. What a waste of hardworking men and women's tax money.
In response to Etienne Gervaise I'd like to point out that Arthur Anderson surrendered their license to practice in public accounting in 2002 and was dissolved.
no way should we kill the fed. yeah sure the rates went up after Bernanke came in. However, the interest rates were to low after and Greenspan kept the there. He should of raise the interest rate earlier to prevent the bubble. Also Fannie and Fredie scandals had a lot to do with who and who could not buy a house. It use to be you had to meet all these requirements but, then the scandals came out and wall street banks got involved in Fannie and Fredie's business thus lacking regulation.... There were also no requirements to be a loan office at the time too. Then the Rating agency notice that the BBB assets were turning out to be as good as the AAA assets so they lack the rating, making it easier to get the AAA regulation. So you had these packages put together with BBB assets mixed with AAA assets getting an AAA rating. Combine that with the Uptick rule being destroyed in 2006, which accelerated the death of bear Stearns into a weekend (don't get me wrong Bear Stearns would of been gone regardless) and pay option negative amortization adjustable rate mortgage this was soon to be a disaster. Then Fannie and Freddie start getting in to the mess they never would of allowed before the scandals. The whole time why the mess was happening the FDIC was warning Greenspan and the rest of them and they never listen.
I have not read his book yet, but I hope Thomas Woods in Meltdown, cited or credited in some fashion the work of C. Edward Griffin and his work The Creature from Jekyll Island : A Second Look at the Federal Reserve. Griffin's work provides a highly detailed account of the creation of the Fed and is a must read on this topic.
It is best to consider all of history, not just some of it. The boom and bust cycle has gone on for centuries, long before the Fed. The Fed is only one player that can cause bubbles, though a gargantuan one. There are always big players in government or business that gain too much power to warp free commerce in markets, which leads to bubbles and then busts.
Nothing will change human nature, so this will keep happening until we create a government that clamps down on ALL excessive power by anyone. If you want to kill the Fed, you had better also kill all megacorporations, all private financing of politicians, and all influence by rich interests or by threats of force. The Fed has often been criminally negligent, but if you kill it you are asking for nuclear-scale annihilation when the next bubble bursts, with no tools at all to fight the fire.
Until there is a serious discussion of how our system would work without it - and an explanation to the average joe of how it would work, it's just not going to happen. Well, unless we're all broke and aren't really using dollars anyway...
The funny thing is that the market works both ways. Prices will be lowered no matter what. On that the market is clear.
As stated above, we can either let businesses with unreasonable commitments fail and prices drop. Conversely, we can spend money until the value of that money is in line with the correct price. Basically, we reprice the entire economy to accommodate whatever we are being inflexible with.
Most people in this country have very little wealth, even before this crisis. This means that the majority of the voters don't really have much to lose by following that path--except for maybe that house that they'll be paying for in devalued dollars.
Some people value wealth above all things. Some people create a sanctity around the contract that ignores that they always are executed in a context. Those kinds of absolutes are just not going to work. An increasingly large number of voters don't *care* that your wealth will dwindle if they keep that house. They don't see any options in a maze of contracted options that collude to always put them on the hook for misfortune. It doesn't matter if its not *fair*. That complaint cuts both ways. It doesn't matter if its the lack of a welfare check, your debtors discharging what they owe in bankruptcy, or the decline of your 401(k)--life is not fair.
What's important, then, is getting people to agree on the values. What does a deterioration in wealth do to jobs? What does it do to our position in the world? What does that do to our consumer economy? Will we not be able to afford plasma TVs? Can we defend ourselves without the buying power to support expensive operations against people who would attack us?
Not one group has satisfactory answers to all of these questions. They generally rail on about their pet questions and pretend that the other ones don't matter. Well, in a democracy, they do matter--even the Plasma TVs. There's a complex interplay of quality of life, the utility of wealth, the limits of the exploitive power of contract law, the nature of the market, and a bunch of other things that guarantee that we won't agree on everything.
The problem is that we have to come together to agree on something. People need to start compromising or that's what's going to kill this country--the politics of the absolute.
This private bank, the FED, controls the value of the earnings saving and wealth of the nation. It has a chartar from our government to do so. It is revealing, that when a real crisis strikes, it saves its owners the "member banks" in the news with dollars it creates by devaluing the paychecks, earnings and savings of Americans who empower but do not own it. To make our political owners happy it monetizes the debt, further devaluing earnings and savings, so the politicians can spend trilions on vote buying pork "without raising taxes on families making less than $250,000."
We might not be able to kill it, but we ought to make it truthful, transparent and accountable to the people, not the banks and the political class.
Both oligarch and tyrant mistrust the people, and therefore deprive them of their arms.
Aristotle
Dr. Wilson,
What books should I read to understand U.S. economic history?
I posted a website that has a few ins and outs on Alexander Hamilton. The key is to follow his directions, Nationalize the FED, re-charter that institution along the lines defined by Mr. Hamilton and allow President Obama to work with his new Bank, independent to the Treasury and guarantor of the Wealth and Debt of our Nation.
There are none. See my article in the last Chronicles.
The solution seems simple enough, abolish the FED and go back to the gold and silver standard. I mean start making the money out of gold or silver. No gold no silver no new money.
To me that seems to be the biggest cause of inflation. We have more paper money than we have gold to back it.
I think there is another bubble building that is the rise of the price of gold. The more the FEDs print money the higher the price of gold. When the money fails the only good thing about owning gold is that it will become the money.
Another concept that concerns me is the moneyless system. I mean I go to work and my employer deposit my check directly into my bank. My creditors take the money directly out of my bank. I don't see any of the paper stuff for weeks. Pretty soon the FEDs won't need to print money. It will all be in a virtual world. How will that be controled.
The denouncement of the ‘American system’ and predictions of its results by such men as John Randolph, John C. Calhoun, and Jefferson Davis (to name only a few) can be called truly prophetic today. Yet we are led to believe these men were traitors, or worse. As the country rapidly looks less and less like a republic and more and more like the Soviet Union, perhaps it is past time we studied history to learn who the real traitors were.
MAP, Wel said.
@20, Michael Holt: "Another concept that concerns me is the moneyless system. I mean I go to work and my employer deposit my check directly into my bank. My creditors take the money directly out of my bank. I don’t see any of the paper stuff for weeks. Pretty soon the FEDs won’t need to print money. It will all be in a virtual world.
How will that be controled."
It will be controlled with guns, like ultimately everything substantial is controlled.
The difficulty of existing in this type of centrally managed economy is that it is not good enough for one to be a wise and responsible steward over their domain. They must GROW in the virtual world at a rate greater than or equal to the rate the maniacs insist upon. Staying even is a losing proposition.
I have talked with many in my family who continue to barrage each other with solutions to this mess based on appropriate outrage. I think it is important to remember there is no real value in money, or gold and silver either, unless you like jewelry or conductive materials. We must all stick to what is truly valuable in our lives and guard that by any means necessary.