**Please
note: This is the temporary home for my weekly column until my personal web
page is up and running.***
At the Fed, The More Things Change, the More
They Stay the Same
Last week, Federal Reserve Chairman
Janet Yellen testified before Congress for the first time since replacing Ben
Bernanke at the beginning of the month. Her testimony confirmed what many of us
suspected, that interventionist Keynesian policies at the Federal Reserve are
well-entrenched and far from over. Mrs. Yellen practically bent over backwards
to reassure Wall Street that the Fed would continue its accommodative monetary
policy well into any new economic recovery. The same monetary policy that got
us into this mess will remain in place until the next crisis hits.
Isn't it amazing that the same people
who failed to see the real estate bubble developing, the same people who were
so confident about economic recovery that they were talking about “green
shoots” five years ago, the same people who have presided over the continued destruction
of the dollar's purchasing power never suffer any repercussions for the
failures they have caused? They treat the people of the United States as though
we were pawns in a giant chess game, one in which they always win and we the
people always lose. No matter how badly they fail, they always get a blank
check to do more of the same.
It is about time that the power brokers
in Washington paid attention to what the Austrian economists have been saying
for decades. Our economic crises are caused by central bank infusions of easy
money into the banking system. This easy money distorts the structure of
production and results in malinvested resources, an allocation of resources
into economic bubbles and away from sectors that actually serve consumers' needs.
The only true solution to these burst bubbles is to allow the malinvested
resources to be liquidated and put to use in other areas. Yet the Federal
Reserve's solution has always been to pump more money and credit into the
financial system in order to keep the boom period going, and Mrs. Yellen's
proposals are no exception.
Every
time the Fed engages in this loose monetary policy, it just sows the seeds for
the next crisis, making the next crash even worse. Look at charts of the federal
funds rate to see how the Fed has had to lower interest rates further and
longer with each successive crisis. From six percent, to three percent, to one
percent, and now the Fed is at zero. Some Keynesian economists have even urged
central banks to drop interest rates below zero, which would mean charging
people to keep money in bank accounts.
Chairman
Yellen understands how ludicrous negative interest rates are, and she said as
much in her question and answer period last week. But that zero lower rate
means the Fed has had to resort to unusual and extraordinary measures:
quantitative easing. As a result, the Fed now sits on a balance sheet
equivalent to nearly 25 percent of US GDP, and is committing to continuing to
purchase tens of billions more dollars of assets each month.
When
will this madness stop? Sound economic growth is based on savings and
investment, deferring consumption today in order to consume more in the future.
Everything the Fed is doing is exactly the opposite, engaging in short-sighted
policies in an attempt to spur consumption today, which will lead to a
depletion of capital, a crippling of the economy, and the impoverishment of
future generations. We owe it not only to ourselves, but to our children and
our grandchildren, to rein in the Federal Reserve and end once and for all its
misguided and destructive monetary policy.
Permission to reprint in whole or in part is gladly
granted, provided full credit is given.
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