Daniel Indiviglio of “The Atlantic” magazine has a piece published today that I read on Yahoo’s finance page.
The title of the piece is “Something Republicans and Democrats Agree On: Their Hatred of the Fed”.
There’s nothing earth-shattering in this article, but there is something with which I take exception:
In other words, a majority of Americans want changes. This goes beyond mere discontent. And this isn’t really a political issue. According to the poll, 19% of independents, 16% of Republicans, 12% of Democrats, and 21% of Tea Partiers want the central bank abolished. That last statistic isn’t terribly surprising, since one of the Tea Party’s favorite politicians, Rep. Ron Paul (R-TX) is arguably the chief Fed opponent in Washington.
Yet the idea that the Fed should be abolished entirely is rather crazy. A complex economy needs a central bank. Some calls for reform could be more legitimate, however.
Hmmm…. The idea that the Fed should be abolished entirely is “rather crazy”. Really?
Let’s have a look at the history of the Fed, shall we? First of all, the Fed’s ORIGINAL purpose was to maintain stable prices and prevent panics, in other words, generally smooth out the ups and downs of the economic cycle.
Price stability: Since it’s inception in 1913, prices have increase 19-fold, or 1900 percent. Said another way, the dollar has lost 95 percent (or more) of it’s purchasing power. That’s not my opinion, that’s a fact.
Grade: Complete failure.
Eliminate Panics/Smooth out economic cycles: Since the Fed’s inception, we’ve suffered through a crash in 1920, the mother of all crashes in 1929 and the Great Depression that followed. We’ve suffered through stagflation in the 70’s, Black Monday in the 80’s and are currently riding out The Great Recession, as it’s been dubbed. These are not my opinions, these are facts.
Grade: Complete failure.
OK, so the Fed was a complete failure on it’s original two missions. You’ll have to forgive them. You see, these missions are what was told to the public. The real mission of the Fed was to have a never ending money supply so banks can lend money even when nobody is depositing money AND, here’s the biggie… to “privatize bank profits and socialize their losses”. What does this mean? That when things go well, the banks win and when things go very badly, you lose. Does the term “TARP” ring a bell?
This was in the plans from the beginning, commencing with the Indianapolis Monetary Commission starting around 1870. The goal of the IMC was to convince the public that fiat currency would actually end panics and benefit them. Surprisingly, the most uneducated farmhand in 1870 knew much, much more about the nature of money and how it works than does the average person today. The public was very much against central banks and had a deep mistrust of Washington and Wall Street (sound familiar). The IMC was in the battle for the long haul, however. For decades, willing accomplices in the media printed papers published by the IMC on how things would be much better under a central bank. After decades of being bombarded by these messages, the old skeptics eventually passed away and newer generations were more open to central banking.
In 1910, presidents and vice-presidents of the largest banks in America converged on Jekyll Island, Georgia and began crafting a plan for central banking. Keep in mind that these men were competitors, or at least they had to compete when money was honest. The fruit of their labor became the Federal Reserve Act of 1913, and as I just mentioned earlier, the American tax payer has bailed out the banks. This is not some catastrophe. This was not unforeseen. This was merely part of the plan; the plan was activated and you and I are left with the bill.
Remember that mission about stable prices, one of the Fed’s original goals? It may interest you to know that from 1800 until 1913, the consumer price index was zero. That means that money bought the same general basket of goods in 1913 that it did in 1800. Disclosure: There was a central bank in the U.S. until 1811, until it’s 20 year charter expired an was not renewed. Incidentally, Andrew Jackson was the president who refused to renew this twenty year charter because he was vehemently opposed to central banking. Today, Jackson’s picture appears on the twenty dollar bill. Coincidence? I think somebody in the Fed at some point decided to have a bit of fun at Jackson’s expense, replacing Grover Cleveland’s face with his in 1928. Jackson actually warned the public about the dangers of paper fiat money in his farewell address to the nation.
But enough history. Back to Mr. Indiviglio.
Sir, are you really telling us, with a straight face, that 113 years of stable prices and far fewer financial crises is “crazy”…. and that a 1,900 percent increase in prices and severely deep recessions and depressions are sane?