If asked to name the most dangerous
organization on the planet, I doubt that few outside of the Austrian economic
community would respond "America's central bank--The Federal Reserve Bank
(The Fed)". Nevertheless, there is no other organization with such a
pervasive and malignant impact over almost all developed civilization than the
Fed. I list here four avenues by which the Fed wreaks havoc upon the
word--economically, militarily, morally, and politically. Undoubtedly others
could list more.
Economic Havoc--Higher Prices and the Austrian
Business Cycle
The Fed is the only entity in America
with the right to produce base money
out of thin air, forgetting for the moment the power of banks to produce fiduciary media
via the lending process (not the same thing as base money). The inflation of the
money supply leads to higher prices for most goods, of course, but not before
enriching the early receivers of the new money--banks, bond dealers, government
contractors, etc.--who get the money before prices have risen. Higher prices
impoverish the later receivers--main street businesses, retirees, etc. This is
known as the Cantillon Effect. In addition, because it sends out faulty time preference signals, the
new money disrupts and distorts the time structure of production, leading to
malinvestment of capital that ultimately must be liquidated--the Austrian Business Cycle Theory. Higher unemployment follows, because workers were
enticed to leave sustainable occupations for unsustainable ones. The capital
losses and worker disruptions can never be recovered; i.e., although the
economy may recover after money inflation is ended, there is a dead weight loss
due to the goods and services that were not produced during the inflationary
times. Plus, the economy's capital base is weakened, meaning that the economy
will never be as robust as it would have been absent the money inflation no
matter how rosy things looked during the inflationary times.
But the economic disruptions from the
Fed's money printing are not confined to America. We may scoff at Zimbabwe or
Venezuela, who destroyed their economies via money inflation but had little
worldwide impact. The Fed's money printing is a different kettle of fish
entirely due to the dollar's position as the world's premier reserve currency.
The dollar is the world's monetary medium of choice for settling international
trade. (According to the International
Monetary Fund, In US dollar terms of the $12.8 trillion total
central bank reserves $7.1 are held in US dollars. The next most commonly held
reserve currency is the euro at $2.5 trillion. Japan is number three at $.7
trillion, and China was number four at $.3 trillion.) Whereas country A's currency may not be in demand in
country B and vice versa, countries A and B can still settle trade accounts in
dollars held in their respective central banks. Since the dollar accounts for
around fifty-five percent of total central bank reserves, the Fed's
inflationary money printing becomes a pandemic virus that infects the world.
Military Adventurism
America spends more on its military than the next nine nations of the world combined.
This is made possible by several special factors, primarily the above mentioned
special privilege of the dollar as the world's premier reserve currency and the
Fed's ability to monetize the government's debt, whereby it takes Treasury
Department debt onto its balance sheet in exchange for new base money for the
Treasury Department to spend on the military. It is commonly acknowledged that
the US spent trillions of dollars on its failed twenty year military
intervention in Afghanistan. (See this Brown University study.)
The US military continues to bomb Somalia
to this day. It intervenes in Syria and is still involved in Iraq. The
justifications for these interventions are getting harder and harder to
swallow, since none of these countries pose an existential threat to the US or
its allies. Rather, it is vast migration of refugees from these war torn
nations that threaten the peace and stability of Europe and America. Our reflex
use of the military, fully funded by newly created money from the Fed, short
circuits any discussion of America's need to get involved in these far off
disputes. For example, the US seems to be determined to side with Ukraine in
its disputes with Russia. In 2014 the US was instrumental in overthrowing an
elected pro-Russia head of state in Ukraine in the so-called Maidan Revolution. Russia is a nuclear power and will be very unlikely to back down in a
real shooting war without using all the weapons in its arsenal.
Moral Corruption
Just as the truth is said to be the first
casualty of war, equally so is that truth a casualty of money inflation. This
is so due to the ability of the Fed to paper over consequences of poor economic
policy. Windmills and solar panels don't work? No problem. Subsidize them with
more money. Raising the minimum wage and foisting more expensive labor
regulations on business cause unemployment? No problem. The government will
send checks. Naturally, the list of market and personal corruption caused by
money inflation is a long one. Market corruptions are always accompanied by propaganda
that private capitalism is bad and government socialism is the answer. Personal
corruption is worse. Government largess entices many of the working poor to quit
working in order to go on welfare. Welfare simply pays more than working, so who
can blame them? It is rational self-interest, but at the cost of independence, self-reliance, and pride. These are
not the only personal costs, though. Welfare is responsible for the breakup of
the family, as documented by Thomas Sowell.
Plus, those not on welfare must labor for those who are on welfare, reducing
capital accumulation. All this is made possible by money printed by the Fed.
Rule of the People Thwarted
In a sound money environment government
spending must be funded by taxes or by honest borrowing, meaning selling debt
in the open market in competition with others. Taxes and honest debt create a
natural limitation on government spending. People may rebel against higher
taxes, and government borrowing crowds out private borrowing by raising the
interest rate. A recession is inevitable. By bypassing this essential
discipline of the people and the market over government actions, the Fed
successfully thwarts the rule of law and diminishes the people's relationship
to their government. Few understand the complicity of the Fed in its ability to
buy our acquiescence with money printed in any amount needed to keep us quiet.
Ours is no longer a government of the
people, whereby government is our servant. Now the people are ruled by their
government. This is a fundamental change that has escaped most Americans.
Conclusion--A Criminal Gang Operating in the Open
It is no exaggeration to say that the
real criminal gang destroying our civilization operates mostly in the open and
is very proud of its work. Private counterfeiters operate in the shadows. No
one claims that they provide a benefit to society. They are thieves. But the
Fed is lauded for counterfeiting the dollar on a scale never imagined by
private thieves. High officials at the Fed are lionized by a corrupt main
stream media for having attained the pinnacle of their professions. There is no
reason for these economic charlatans to re-examine the consequences of their
policies. For this reason alone it is safe to say that...
THE FED IS THE MOST DANGEROUS ORGANIZATION ON THE
PLANET
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