Yes, yes, we have heard it all before: End the Fed! However, there are varying questions that must be asked and answered to fully understand why the United States needs to end the Federal Reserve System (or even why other countries must abolish all forms of central banks) and how it would help us avoid the economic collapse.
Why is there ardent support to eliminate the Federal Reserve? How does Federal Reserve Chairman Ben Bernanke distort the economy with his monetary policies? Has the U.S. dollar really lost 90 percent of its value? What would the Fed be replaced with? All of these are pertinent questions to ask for those just getting interested in economic, fiscal and monetary policy or even for individuals who need to freshen up on a topic that first peeked their interest in libertarianism, free markets and capitalism.
Economic Collapse News has reported on the various experts that project a downfall of the U.S. economy, whether it’s because of the Fed’s actions, the $16 trillion (and growing) national debt and the recklessness of government spending. It has also been reported how Americans could protect themselves and their wealth.
“The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch – Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference – that threatens to impoverish us by further destroying the value of our dollars.” – retiring Texas Republican Congressman Ron Paul.
No matter how the economy crashes, the Federal Reserve is either the primary culprit or at the very least part of the problem. Here are five reasons why the Fed must be abolished in order to avoid a complete collapse of the U.S. economy.
1. Artificial Interest Rates
Interest rates are very important in an economy. In economic reality, the market is supposed to set interest rates, but the Federal Reserve has been controlling these very rates for a long period of time. Since the 1990s, though, interest rates have been artificially lowered and has been a disastrous policy for all parties (at the time, no, but long-term, yes).
Low interest rates hurt savers and even hurt spenders because they will have to pay back the money they borrowed eventually at a higher cost. Essentially, it’s a matter of sacrificing tomorrow for today. Meanwhile, high interest rates benefit savers, creates capital and encourages the average citizen to save and and invest because they will receive a nice return.
Whether it’s low or high, the market, again, is the one that establishes an interest rate. Not a man flying around in a helicopter raining money.
The Federal Reserve’s latest announcement includes replacing the Operation Twist stimulus program with $45 billion acquisitions of Treasuries each month on top of a $40 billion per month mortgage-backed bonds. The Fed’s aim is to expand its balance sheet by $1 trillion to $3.8 trillion, which equates to a lot of inflation.
Where does this money come from? How does it appear? The Fed just prints (or hits a few buttons) a lot of money out of thin air. By creating a lot of dollars, it devalues the currency and hurts the lower and middle-classes (when hyperinflation happens the affluent will also suffer). This leads to a rise in prices at the grocery stores, pharmacy and movie theaters.
To comprehend how much money the Fed has printed out and given, one must look at this blog post that shows the Fed gave out $16 trillion to domestic and foreign banks at the height of the 2008 financial collapse. Does anyone really wonder how the U.S. dollar has lost 90 percent of its value?
If one doesn’t have cause for concern when it comes to inflation then please look at this chart that shows the consumer price index rise dramatically. Prior to the Fed’s existence, the U.S. had no real inflationary crisis.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” – former Federal Reserve Chairman Ben Bernanke (what happened?)
3. Perpetual Debt Machine
“Hey, Ben, it’s Barack,” President Barack Obama said as he looked at the latest budget figures.
“Oh, hi, Barack, how are you?” asked a sleepy Federal Reserve Chairman. “What’s up? Is there anything the matter?
“Yeah,” Obama replied, “I need some money so I and my elephant and donkey buddies down here in Washington can spend some more.”
“I’ll print an extra $1 trillion in an hour or two,” Bernanke replied without hesitation.
All right, indeed, this was a dramatization, but you understand the picture: the U.S. government spends a lot of money and it is exacerbated through taxing and borrowing. When it cannot do either any longer it resorts to the Fed so it can create a whole lot of money out of thin air. This is what has led to a $16 trillion national debt.
The Fed has made the U.S. federal government addicted to debt. Since 1940, the national debt has risen from a couple of hundred billion dollars all the way to today’s figures. Unfortunately, that number will not stop: the Fed has promised more money and the projections from the Congressional Budget Office (CBO) show the debt will increase to $20.3 trillion by the end of 2016.
This means the U.S. government debt held by the general public will exceed an enormous number of 716 percent of GDP within the next six decades. Just imagine if there was no central banking system; the federal government would have to spend within its means and there would be no debt.
“The budget should be balanced, the treasury should be refilled, the public debt should be reduced and the arrogance of public officials should be controlled.” – former Independent 1992 presidential candidate Ross Perot.
4. Business Cycle
Ludwig von Mises and Friedrich Hayek put forth an incredible theory to show how business cycles really work and how central banks are the perpetrators. Murray N. Rothbard has also discussed this topic at length, including a brilliant essay titled “Economic Depressions: Their Cause and Cure.”
The two leading Austrian Economists say business cycles transpire when bank credit grows disproportionately that is due to unwarranted central banking policies. This leads to artificially low interest rates, too much credit creation, economic bubbles that will eventually burst and less savings.
There are varying aspects of the theory: the boom-bust cycle of malinvestment, the choice of spending rather than saving, entrepreneurs making the same mistake too many times when the economy becomes artificial and an increase in the money supply. All of these factors lead to a credit crisis, a pop in any bubble and eventually a recession or a depression to allow the economy to readjust itself.
Obviously, such policies are a hindrance to free markets because this entity chooses the interest rates, does not create financial bubbles and selects what financial institutions survive and which don’t – the 2008 financial collapse was a good example of how the government prevented the market from actually doing its work.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises in his groundbreaking “The Austrian Theory of the Trade Cycle.”
5. The Fed People
The “smart men” running the Federal Reserve are not elected by the people and have no real congressional oversight. Chairman Ben Bernanke is not beholden to the people and not even beholden to the president. Retiring Texas Republican Congressman Ron Paul has even said the Fed has more power than both the congress and the CIA.
If the founders thought the media was the fourth branch of government then they were entirely wrong. The Fed is the real fourth branch of the government, except that, again, it is not elected and it is a very powerful and secret organization.
Indeed, even if the White House wanted to tackle the problem of the Fed, it would be extremely difficult. Most of those at the Fed or in Washington have been related to the major financial institutions in some way or another (I.E. Henry Paulson, Timothy Geithner, Jon Corzine, Rahm Emanuel and many others just to name a few).
In the end, those running the Fed will benefit the few in order to ruin the lives of many through inflation, low interest rates, bubbles and an overall collapse of the economy.
“The Federal Reserve is an independent agency and that means, basically, there is no other agency of government which could overrule actions we take.” – former Fed Chairman Alan Greenspan in an interview with PBS.