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CATO Institute. Working Paper: Has FED Been A Failure? November 2010.
"Although it has manifested itself in different ways during different decades...
From econotwist
If one is to judge the efficacy of an institution by the policies it promotes, thedecisions it makes and the results of its actions then the Federal Reserve BankSystem has been one of the most dismal failures in history. Aside from the side-effects of an absolute fiat monetary system, such as the drastic depreciation ofthe purchasing power of the currency; the FED has not preformed well in theprevention of instability in the economy, just the opposite, it has created a longlist of boom and bust cycles since the Federal Reserve Act was passed in 1913.Just look at its record: 3 Depressions in the 20th Century; the first was in 1920-1921, the next was 1929-1933 and the next was 1937-1938. There were sharpRecessions: 1923-1924, 1948-1949, 1953-1954, 1957-1958, 1973-1975, and 1981-1982.1987. Then there were 7 mild Recessions: 1926-1927, 1960-1961, 1969-1970, 1980,1990-1991, 1999 and then 2001 brought on by the events of 9/11 and of course thelatest FED fiasco that we are now witnessing. That is not the best record in theworld for the Federal Reserve System and Keynesian Economics.The long-term monetary policy promoted by the FED, this government and othercountries, is ruinous. It is based on a game that relies solely upon the illusionof value, the deception of debt wealth. It is, simply a catastrophe that isliterally unfolding before our very eyes. Any dependence by any society upon suchan inconspicuous system of gradual monetary depreciation is, to say the veryleast, unwise, shortsighted and poses a very real danger to the future well beingof the People.Of course, such an inflationist fiat monetary system allows the government toexpand everything politicians can dream up without resorting to a drastic increaseof taxes on the People, this helps the government avoid such nasty and potentiallydangerous acts of over-taxation; nevertheless, inflation is, perhaps the mostinsidious means of tax ever devised. It not only drains a great deal of productivewealth from the country, but it promotes government expansion, poor decisionmaking and misguided polices.The loss of productive wealth is probably the most damning result of fiat money;it impedes progressive commerce in ways that few understand. It is so damaging tothe ability to judge the time value of our money that businesses, particularlythose involved with long-term capital investments cannot accurately rely upon thefuture value of their money. Thus the true cost of capital always evades commerce,encouraging malinvestments and bad decisions; it is a sloppy system of money.Since there is never a clear signal upon which businesses can draw upon,especially when it comes to the manipulation of interest rates by the FED, it isan unreliable indicator of time preferences which, under a free-market system,coupled with sound money, would give such indicators and allow for far betterdecision making with both monetary and business movements.Based upon the monetary and credit polices of the FED, commerce should haveexperienced a steady growth due to the injection of money and credit intocirculation however, this does not appear to be the case. Now, based of FEDfigures, monetary growth and credit there has been an increase close to a factorof 90% between the periods of 1950 and 2008, yet we do not see a comparable rateof economic growth, the truth is that we see just the opposite, a declining growthrate and a drastic decrease in the purchase power of the dollar. In fact, judgingother indicators, such as the amount of debt it now takes to generate even adollar's worth of economic growth our country is on a precipice from which therecan be no retreat, at least as long as this monetary system continues to drainaway all viability from the economic system.Without doubt, there are those apologists for the currency fiat monetary systemand the economy that has been built upon it who sing the praises of its
elasticity, its flexibility when just the opposite is true. What they actuallyheap their praise on is government intervention through the implementation of theFederal Reserve Bank. It is not, nor can it be a long-term solution, such systemsalways fails in the end. They shout that in order for the economy to keep going,for it to grow there must be a constant and consistent supply of money injectedinto circulation. While that is perfectly true for a fiat monetary system, it doesnot hold true for a sound monetary system. It is not the number of dollarsfloating around in the economy that matters, but the effective purchasing power ofeach dollar that assist in the productive creation of commerce and, in turn,wealth. With fiat money, central banking intervention and manipulation alwaysdepreciates the purchase value of money to the point that the only impetus foreconomic growth is the injection of even more money and credit into the system.This is, of course, a precarious road to travel upon.Eventually, of course, this great inverted pyramid of debt that they have helpedcreate can no longer be balanced. The debt and inflation become impossible tomaintain to the point that the FED will be increasingly unable to create more debtto create more money to effect its balancing act. Thus far, the only thing keepingthe entire system afloat is the fact that up until now they have been able tocontinue the process, but as you and I will soon see, that will no longer bepossible. It is becoming evident that as the debt looms larger and larger, it willsiphon all profitability from the economy because the economy can simply notservice that galactic degree of debt.There is currently an effort by the FED, the Treasury and this government of agreat postponement; one that will barely slow the crisis, for it is systemic notonly in its nature but the flaws within the system are inherent. There is a veryreal dual deterioration taking place at the moment, one involves a deflationarytrend in banking, credit and business, the other is a massive inflationary trendtaking place as the FED injects truly unbelievable amounts of credit liquidity andmoney into the system. There are other even more ominous threats to our economicsurvival on the horizon, of which there will be few options left the FED in itsability to divert disaster. Soon, there will be massive defaults, on such a scalethat this country has yet to see in its history.It has assisted in creating a vast black hole of debt one that has been steadilysucking the life from this country and its people. The only thing, and I mean theonly thing that is keeping the entire system hobbling at the moment is the abilityof the FED to keep the "printing-press" running at full speed. The problem ofcourse is that the debt is multiplying faster than the FED can print itself out ofthe hole. The FED is constantly attempting to push that event horizon out in time,creating a lag-time between now and the "Reckoning".It is, of course, becoming more and more difficult for the FED to keep the spreadfrom narrowing. As we know, the people of this country are woefully unaware ofjust what is taking place and because there is a delay between the actions of theFED and the reactions within the economy this allows problems to go unnoticeduntil they are upon us.Eventually, the entire system becomes unmanageable, stress-cracks simply becometoo common and too deep to contain with the normal actions taken by the FED, as weare seeing. At this point, the decision-making process is much more akin to a stabin the dark than anything resembling sound monetary and economic policy.We are seeing signals of a monetary system that is heading for the bone yard. Theexpansion of bank credit an money, thus more debt, all sponsored by a central bankwhich has proven itself incompetent since its inception in 1913, will begin todemand far more than the economy will be able to produce. As I have stated, time
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The Continual Failure of The Federal Reserve System
If we are to judge any institution by its record, then it should be obvious that the Federal Reserve Banking System has been a dismal failure!
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