The current Fed Chairman, Ben Bernanke, has openly boasted that the Federal Reserve caused the Great Depression. Of course the Fed’s guilt is not that controversial among free-market economists, but it’s interesting that most Americans still don’t grasp this most basic fact of US economic history… even when the Fed Chairman himself has spoken about it publicly.
The Federal Reserve was forged by Senators Sauron and Aldrich in 1913 to "bring them all, and in the darkness bind them." OK, actually it was created by a group of evil banking wizards on a 1910 duck hunting trip, as all "regulatory agencies" are always summoned into existence by the criminal elements of the industries that they "regulate." The Fed does, however, function in much the same manner as the One Ring:
The Fed magically drains real wealth from those who use its creations. Since 1913 it has vampired 95% of the value out of the dollar, and thus out of those foolish enough to use the dollar as a "store of value."
The Fed allows the transfer of this wealth and power to the Dark Lords of foreign lands (under the Monetary Control Act of 1980). The Fed can, and does, simply print tens of billions of dollars to buy the worthless bonds of any dictatorial regime on Earth. This is called "monetizing foreign debt," and is very helpful to many of the Orcish governments.
The Fed makes the wielder invulnerable to market forces in the bond market. Anyone who knows Fed policy ahead of time gains the Fed’s power to vampire wealth from those who create it.
In 1929 and through the 1930s, as Bernanke says, the Fed hurled the entire US economy into the Great Depression and kept it there for years, unemploying millions. Civilization literally went backwards, with negative economic growth.
In 1933, the Fed magically stole all the gold from the bank vaults of the nation and moved it into darkness (a darkness so complete that the gold has not been audited since the 1950s). Dragons everywhere died of envy, moving them onto the endangered species list.
Today, the Fed detaches the military-entertainment complex from the need to openly pass war taxes through Congress. They simply print as many dollars as they want, reducing the value of all other dollars proportionately. The purpose of taxes is just to maintain a demand for depreciating dollars, since everyone needs them to send to the IRS.
Does the Fed render the user invisible? Well, it certainly makes him hard to see. (Just try getting an appointment with Bernanke now). And it makes it progressively harder for the wielder to see the real world. Even the strongest free-market economist will eventually be overcome by its power and reduced to droning incomprehensibly.
The Fed performs no productive economic function. All it does is increase the fluctuations in the value of the medium of exchange. Thanks to the "fractional reserve" nature of the Fed, it can’t even accurately control its own destructive powers.
Many Americans already realize that the dollar is a terrible store of value, and use it only for the shortest term that they can. Long-term savings are held in the form of stock mutual funds, real estate, and increasingly "exchange traded funds" like GLD and SLV… in other words, gold and silver, just as people have done for thousands of years. There is no barrier to people using any of these real commodities for trade.
Visa, Discover, Paypal, Ikobo, etc. etc. are all perfectly capable of electronically transferring any form of fully-backed private money around. The ancient "check-clearing" system of the Fed is ridiculous and redundant; why should money travel slower than the speed of light?
So the only reasonable solution is obvious to students of the Fed: send a multicultural task force to throw the cursed thing into an active volcano. Once the Fed is destroyed, monetary life could return to normal. US political strife would be reduced as well, since there would no longer be an all-powerful economic prize for the winning faction.
Bernanke, however, wants to keep his Precious. He thinks that the only thing the Fed did wrong in 1929 was not keep printing more money. So, his response to the upcoming economic crisis caused by the Fed printing money will be to print even more Fed money and send out the Fedwraiths to hurl currency down from the backs of Nazgul. (OK, he really referred to helicopters). This sounds great to lots of Americans.
There are two things wrong with Bernanke’s idea of showering paper currency onto the streets to "fix" deflation:
First, the Fed doesn’t only damage the economy during deflations. Bernanke ignores the damage done by inflation. In addition to simply stealing from those on fixed incomes, inflation damages the entire information flow in the economy. If no one knows exactly what money is worth, they can’t calculate profits and losses. The whole parallel-processing computer that we call "the market economy" gives inaccurate answers. For instance, all through the 1920s, the Fed inflated, and businesses thought they were doing better than they were. They overinvested in their existing product lines. Then when the Fed DEFLATED in the Depression, businesses went bankrupt and underinvestment was the rule.
The destruction of information doesn’t stop there. Inflation and deflation make it even harder to predict the value of money years in the future. If there is deflation, you can’t pay off your debts; if there is inflation, your savings, insurance payouts, bond interest etc. become worth less. Inflations and deflations transfer ownership of real goods around, scrambling property rights (and always in favor of those who know monetary policy in advance).
Second, Bernanke knows full well that the money helicopters aren’t going to distribute money evenly and proportionately to all holders of dollars. The government will print money all right… and they’ll spend it on more Mideast wars, more corporate welfare, and more vote-buying "programs." Even if the Fed wanted to, they couldn’t keep the ownership of real goods from getting transferred away from ordinary working men… and they don’t want to.
Will Bernanke use the Fed to inflate or deflate? The only certainty is that he will do one or the other, damaging the information flow through the economy… until enough people realize that it’s time to "to cast him down and have no one in his place." In the meantime, best not to have all your family wealth in dollars when Bernanke’s helicopters start blaring the "Ride of the Valkyries."
Bill Walker [send him mail] works in HIV and gene therapy research in Rochester, Minnesota.