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Federal Reserve: A 100 Year Old Failure

Posted by Larry Doyle on August 14, 2013 8:30 AM |

The Federal Reserve was founded in 1913 and here we sit 100 years later wondering who will be the next chair of this all powerful institution.

While there is serious politicking going on for both Larry Summers and Janet Yellen, will it really matter whether it is one or the other running this institution?

Perhaps at the margin and for optics the choice of Summers vs Yellen might matter, but in the grand scheme of things neither of these individuals is going to redirect the Federal Reserve from its failed policies. You don’t think so? 

Many maintain that if not for the Federal Reserve, our economy would be far worse off than it is currently. I encourage those in that camp to take a slightly wider angled view of things.

Those unaware should realize that the Congress established the statutory objectives for monetary policy — maximum employment, stable prices, and moderate long-term interest rates — in the Federal Reserve Act. So from a wide-angled, long term perspective, just how is the Fed doing?

I would maintain that the Fed engages in little more than manipulating our currency via systemic and protracted devaluation so as to game international trade and inflate asset valuations in the hope that both might promote increased consumption here at home. In the end and in reality, the Fed’s banking friends are able to ring the register while the rank and file consumers and taxpayers get stuck with ever larger bills.

How is the Fed doing on achieving stable prices? From a US Inflation calculator, we learn:

If in 1913, I purchased an item for $20.00, then in 2013, that same item would cost $471.73 for a cumulative rate of inflation of 2258.6%

So much for stable prices.

The artifice played by Uncle Sam and his friends at the Fed has allowed for the basket of goods used to compile our rate of inflation to be gamed so as to try to keep the reported rate of inflation down. What we have generated in reality is an overall declining standard of living at our core that Uncle Sam and the Fed have been able to disguise due to technological advancements and innovation. Do they deserve credit for those developments? They would certainly maintain that they do so as to offset their massive failures elsewhere.

In regard to full employment, if we were to utilize the same measures practiced back in the day, our current unemployment rate would be well north of 20%.

I will grant that the Fed has company in achieving these massive failures, but the Fed owns plenty of the mess as well.

So what should the Fed be doing? Admit failure, stop pushing and printing paper dollars, and acknowledge that real health, wealth, and prosperity are achieved through increased innovation and productivity that stem from policies promoting a strong dollar and real protection of investment capital.

Might Summers, Yellen, or anybody else in and around Washington both preach and practice these principles? I am not holding my breath, but if we can find an individual who embraces them, then whomever it is should be the next chair of the Federal Reserve.

I do realize that the chances of this debate even unfolding in Washington are slim and less than that, but we’ll go down fighting. In the meantime, if you see Summers, Yellen, or any of their supporters perhaps you can ask them for their historical perspectives on the value of the dollar, stable prices, and unemployment.

I would be interested in their answers.

Navigate accordingly.

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • happel

    Larry Doyle for Fed Chair.

    Only so he can dismantle it and get us on the right track!!!!

  • Peter Scannell

    According to the Federal Reserve, as of the third quarter of 2012, nonfinancial corporations in the United States held $1.7 trillion in cash and liquid securities. The leadership of these corporations have deliberately chosen not to invest in job creation in the U.S, an abysmal moral failure – plain and simple.

  • Russ

    Larry,

    The government WANTS inflation.

    It’s the only way they can pay their bills to foreign governments. The moment the dollar comes off the international standard, we’re done.

    Great piece today!

  • Van

    THE FEDERAL RESERVE WAS CRIMINAL FROM THE BEGINNING. IT WAS A BRILLIANT SCHEME FROM THE STANDPOINT OF THE MONEY MONGRELS, AND HAS HIDDEN THE FACTS FROM THE DELUDED BRAINWASHED POPULOUS FROM WHOM THE MONEY WAS STOLEN.

    NOW THE DEBT ON THE AMERICAN INDIVIDUALS, WHO HAVE ALWAYS BEEN THE ASSET BACKING FOR THE NATIONAL DEBT, IS OF SUCH AMOUNTS THAT IT CAN NEVER BE PAID.

    IN WAR, YOUR ENEMIES AND YOU, ALWAYS KNEW THAT COUNTERFEIT MONEY WAS DAMAGING TO THE ENEMY. BILLIONS OF COUNTERFEIT DOLLARS WERE PLACED INTO THE ENEMY SYSTEM BY ALL SIDES. OUR GOVERNMENT HAS NOW PLACED INTO THE SYSTEM, HERE, COUNTERFEIT DOLLARS…ALL OF THEM ARE COUNTERFEIT.

    I GUESS THAT MAKES SOME KIND OF SENSE TO THE MANY WHO TRADE ON COMMODITIES THAT DON’T EVEN EXIST IN NEAR THE AMOUNTS THAT ARE TRADED. THAT IS CHASING THE DOLLAR TO A RIDICULOUS EXTREME.

    IT IS ALL SMOKE AND MIRRORS.

  • Van

    The 7 Stages of Empire, from Mike Maloney’s “Hidden Secrets of Money 2″

    A country starts out with good money which is either gold or silver or backed by gold or silver.

    As it develops economically and socially it begins to take on more and more economic burden adding layer upon layer of public works.

    As its economic affluence grows, so does its political influence and it increases expenditures to fund a massive military.

    Eventually it puts its military to use and expenditures explode.

    To fund the war it steals the wealth of its people by debasing their coinage with base metals or by replacing their money with currency that can be created in unlimited quantities.

    The loss in purchasing power of the expanded currency supply is sensed by the population and the financial markets triggering a loss of faith in the currency.

    A mass movement out of the currency into precious metals and other tangible assets takes place.

    The currency collapses and gold and silver rise in price as they account for the huge quantity of currency that was created.

  • Sam

    I,m going to push back on this commentary and in doing so I am not going to do more research than is at my fingertips. This means I am going to use the BLS reported numbers for Average Hourly Earnings of Production and Nonsupervisory Employees Total Nominal Dollars seasonally adjusted. The series goes back to January 31, 1964 where it starts at $2.50. The last reported number was $20.14.

    Plugging $2.50 and 1964 into the US Inflation Calculator I get $18.83 in current dollars. So, where’s the beef? You won’t find it in inflation-adjusted data.

    Note that I am not one of those people who feel we would have been worse off had the Fed not taken the route it has. I believe their emergency response as lender-of-last-resort early in the crisis was correct. There is no one who can convince me, however, that propping up asset values by removing high-quality collateral from the marketplace does anything at all to get money into the hands of real working people when a falling labor share of income is taking money out of their hands at the same time.

    Those who claim that things would have been worse had the Fed not acted don’t know what they are claiming. There are no alternative histories. Or, said another way, there are infinite alternative histories. Picking one out of modeled thin air like the San Francisco Fed researchers did while reviewing the effects of QE2 earlier in the week is model storytelling, nothing more, nothing less. It is interesting, but meaningless.

    If my recollection of Keynes’ General Theory is correct, what you claim as the Fed’s manipulation is exactly what the old man suggested was necessary for the masses to be satisfied. The average guy looks at nominal wage growth, not real wage growth. What you describe as a degradation in our overall standard of living has much more to do with income and wealth inequality, Gini coefficients and the like, than it has to do with Fed policy (beyond their bank regulatory capacity which is where they really screwed up badly).

    Bottom line is that I think the days of unconventional monetary policy should be coming to an end soon. These guys did a decent job. They just overstayed their welcome and, relatively speaking they are a non-event anyway. The real serious issues in this country have much more to do with fiscal and tax policy than they have to do with monetary policy.

    As always, best wishes and keep up the excellent writing. Looking forward to reading your book.

  • LD

    Sam,

    I thank you for not only taking the time to write but to do so in a manner that brings real depth and substance along with it. I end up much more informed in the process.

    I certainly do not have all the answers — far from it — but welcome providing a forum for people to share their views so those who read it might be a little more informed. Including me.

    I would concur that the only worse thing than bailing out the banks was not bailing them out. Clearly we ventured into largely uncharted waters and we remain there.

    Interesting times indeed … please keep pushing back.

  • Curtis Caine

    The Constitution of these United States forbids Congress to “enact” the Federal Reserve Act creating a private central bank. QED






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