The Failures of the Fed
"The Federal Reserve has, by all accounts, been one of the world‘s more responsible and successful central banks." But does that mean it is a good thing? Or even one of the better alternatives? A working paper by the Cato Institute's George Selgin, William Lastrapes, and Lawrence White attempts to answer the question:
Has the Fed been a Failure?
Has the Fed been a Failure?
 | "The Federal Reserve System demonstrates the complete inadequacy of mainstream economics in its present state.... The Federal Reserve reveals the folly of the very idea of giving a single man and his institution the power to centrally plan the most important price in the economy: the rate of interest. Make no mistake: the present economic crisis was brought on by central planning." - J. Grayson Lilburne ...and they used the crisis as an opportunity to transfer more of your wealth into the hands of politicians and big bankers. |
The Fed causes the cyclical boom/bust recessions in our economy. It redistributes wealth from Americans and foreign nations to the banksters and politicians. It has devalued the dollar by 95% since its inception.
Here are Just a Few of the Fed's Many Failures Explored in the Cato Working Paper:
Fed‘s full history (1914 to present) has been characterized by more monetary and macroeconomic instability than the decades prior to the Fed‘s establishment. The problems appear to reside with the institution, and not with particular personalities who have been placed in charge of it. The Fed is incapable of accomplishing its stated objectives.
Far from achieving long-run price stability, it has allowed the purchasing power of the U.S. dollar to fall dramatically. A consumer basket selling for $100 in 1790 cost only slightly more, at $108, than its rough equivalent in 1913. After 1913, prices soared, reaching $2422 in 2008
Early in its career, the Fed presided over both the most severe inflation and the most severe (demand-induced) deflations in post-Civil War U.S. history. Since then, it has tended to err on the side of inflation, allowing the purchasing power of the U.S. dollar to deteriorate considerably. That deterioration has not been compensated for, to any substantial degree, by enhanced stability of real output.
The Fed has not reduced the overall frequency of bank panics or average duration of recessions. Since the Fed formed it presided over the crashes of ’21 and ’29, the Great Depression, the recessions of ’53, ’57, ’69, ’75, ’81, 2001, and the current financial crisis.
The Fed has taken the role of extending credit to insolvent institutions. The Fed made large discount window loans to both Franklin National and Continental Illinois before their spectacular failures in 1974 and 1984, respectively; and between January 1985 and May 1991 it routinely offered extended credit to banks that supervisory agencies considered in imminent danger of failing. Ninety percent of these borrowing banks failed soon after.
A central bank‘s readiness to lend to troubled or otherwise favored banks, providing explicit or implicit central bank bailout guarantees, promotes bad banking.
Already by 2002, according to one estimate (Walter and Weinberg 2002), more than 60% of all U.S. financial institution liabilities, including all those of the 21 largest bank holding companies, were either explicitly or implicitly guaranteed. Overly risky financial practices were a predictable consequence. As Charles Calomiris (2009a) observes, the extraordinary risks taken by managers of large financial firms between 2003 and 2007 were the result, not of ―random mass insanity, but of moral hazard resulting in large part from the Fed‘s willingness—implicit in previous practice—to depart from classical last-resort lending rules to rescue creditors of failed firms.
Up to 2008, the Fed was buying up bad assets of insolvent institutions to prop them up and they were cutting back loans to solvent institutions. This is 100% backwards.
Bailouts
The original bankers that drafted up the Federal Reserve system wanted to devise a way to pass on losses in the banking system to the taxpayer without them knowing about it. They were talking about bailouts long before the current round of bailouts. In the meeting they had lengthy discussion about the prospects of not letting a bank or firm fail that may lead to a financial crisis.
On 12/01/2010, the Federal Reserve released details on the $3.3 trillion in emergency loans made from 2007-2009. No surprises here – the report showed the companies that received bailouts included Goldman Sachs, Citigroup, JPMorgan Chase, Bank of America, and Wells Fargo. The Fed also detailed the $1.25 trillion in mortgage securities it bought from Fannie Mae and Freddie Mac. The Fed also gave loans to foreign banks such as Barclays, Royal Bank of Scotland and Deutche Bank.
This is not new. There has been a long history of bailouts by the Fed: Pen Central Railroad (1970), Lockhead (1970), New York City (1975), Chrysler (1978), Continental Illinois (1982), and the IMF gets the money from the Fed. The Fed gets the money from the people of the US.
The original bankers that drafted up the Federal Reserve system wanted to devise a way to pass on losses in the banking system to the taxpayer without them knowing about it. They were talking about bailouts long before the current round of bailouts. In the meeting they had lengthy discussion about the prospects of not letting a bank or firm fail that may lead to a financial crisis.
On 12/01/2010, the Federal Reserve released details on the $3.3 trillion in emergency loans made from 2007-2009. No surprises here – the report showed the companies that received bailouts included Goldman Sachs, Citigroup, JPMorgan Chase, Bank of America, and Wells Fargo. The Fed also detailed the $1.25 trillion in mortgage securities it bought from Fannie Mae and Freddie Mac. The Fed also gave loans to foreign banks such as Barclays, Royal Bank of Scotland and Deutche Bank.
This is not new. There has been a long history of bailouts by the Fed: Pen Central Railroad (1970), Lockhead (1970), New York City (1975), Chrysler (1978), Continental Illinois (1982), and the IMF gets the money from the Fed. The Fed gets the money from the people of the US.
The Fed has been wrong about everything in the last decade....so we give them more power?!?!?
Here are a Few Economic Predictions by the Chairman of the Federal Reserve:
So, after the Federal Reserve and our wise leaders in Washington caused a financial crisis they didn't see coming, we decided to give them more power and more ways to steal our wealth.
Tucked into the 451-page bill that created TARP is a provision that lets the Fed pay interest to its member banks on the reserves banks are required to hold at the Fed.
Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads. If the Fed’s money comes ultimately from the taxpayers, that means we the taxpayers are paying interest to the banks on the banks’ own reserves – reserves maintained for their own private profit.
How are we expected to trust the people that led us into the financial crisis, who didn’t see the crisis coming, who have misdiagnosed the problem, how are we expected to trust them to lead us out?
Why don't we start listenting to the economists who have been writing about this pending crisis for over a decade.
Here are a Few Economic Predictions by the Chairman of the Federal Reserve:
- During an interview in 2005 Bernanke was asked if he felt we were seeing a bubble in real estate and if this bubble bursts would it be a real issue for the economy, possibly even causing a recession. His reply....“It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize, but I don't think it's going to drive the economy too far from its full employment path” – Ben Bernanke, Chairman of the Federal Reserve, July, 2005
- “The impact on the broader economy and financial markets of the problems in the sub-prime markets seems likely to be contained.” Ben Bernanke, Chairman of the Federal Reserve – March 28, 2007
- A few months before the Emergency Economic Stabilization Act of 2008 was signed into law by Bush on October 6th creating the $700B TARP program: “Despite a recent spike in the nation's unemployment rate, the danger that the economy has fallen into a 'substantial downturn' appears to have waned.” Ben Bernanke, Chairman of the Federal Reserve – June 9, 2008
So, after the Federal Reserve and our wise leaders in Washington caused a financial crisis they didn't see coming, we decided to give them more power and more ways to steal our wealth.
Tucked into the 451-page bill that created TARP is a provision that lets the Fed pay interest to its member banks on the reserves banks are required to hold at the Fed.
Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads. If the Fed’s money comes ultimately from the taxpayers, that means we the taxpayers are paying interest to the banks on the banks’ own reserves – reserves maintained for their own private profit.
How are we expected to trust the people that led us into the financial crisis, who didn’t see the crisis coming, who have misdiagnosed the problem, how are we expected to trust them to lead us out?
Why don't we start listenting to the economists who have been writing about this pending crisis for over a decade.
