Ben Bernanke orated. Like E.F. Hutton, when the chairman of the Federal Reserve speaks, people listen—even when he isn’t saying much.
At the Jackson Hole, Wyoming address on Friday, Bernanke did say that the economic recovery has “proved disappointing thus far.” We needed the Fed chairman to tell us this? He did not say whether or not the Fed would unleash another round of quantitative easing, bureaucratspeak for the government effectively defaulting on its debts by counterfeiting money to lend to itself.
Referencing the debt-ceiling negotiations, Bernanke lectured that Congress needs “a better process for making fiscal decisions.” He is one to talk. At least when Congress makes trillion-dollar decisions, the public knows about it. We didn’t get the details until last week on the $1.2 trillion the Federal Reserve secretly lent to financial institutions, including $84.5 billion to the Royal Bank of Scotland and $66 billion to Deutsche Bank, during the 2008 crisis. It took a lawsuit from Bloomberg for the Fed to reveal details of an endeavor even larger than the Troubled Asset Relief Program. This is what democracy looks like?
Printing money rewards failure and punishes success. Whether one speaks of Morgan Stanley or the federal government, the Fed’s printing-press bailouts have enabled recklessness. With losses socialized by the Fed, financial institutions will continue the risky lending that catalyzed the Great Recession. With debts absorbed by the printing press, the government will continue out-of-control spending without reference to revenues.
People who have accumulated money rather than debts are harmed. Printing an abundance of dollars doesn’t make us rich. It makes our dollars poor.
Supply and demand influence price. Gold, oil, and foodstuffs have experienced significant price rises during Bernanke’s Fed tenure. Is there a gold, petroleum, or milk/bread/meat shortage? No. But the prices have skyrocketed nevertheless. So what’s happening? The simpleton looks at one half of the economic transaction: the commodity. But a more aware observer considers supply and demand as it pertains to currency.
Gold isn’t skyrocketing. The dollar is plummeting. The price of oil isn’t rising. The value of our money is declining. Cows aren’t refusing to give up the milk. The Fed is flooding the market with greenbacks.
A dollar ain’t what it used to be. Today’s dollar has the purchasing power that a nickel had the year of the Federal Reserve’s birth. The Fed’s statistics released Friday showed that M1, one of its measures gauging the money supply, has increased by almost 20 percent in the last two years. And that is on top of a dramatic spike during the 2008 financial crisis. With such periodic violence against the currency, is it any wonder that the Fed has made a dollar less than a dime in its lifetime?
The legislation establishing the Federal Reserve sought “to furnish an elastic currency.” That objective has been too thoroughly accomplished. A relic from a “progressive” era in which technocrats seized power from the people, the Fed offers a multitude of reasons against its existence.
It’s unconstitutional. Article 1, Section 8 of the Constitution empowers Congress to “coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” Like the power to declare war, Congress has abdicated its responsibility in the hopes that voters won’t hold them responsible.
It’s immoral. A dollar, like a weight or a height, is a measure. Altering a fixed standard at whim is something akin to a short man declaring himself seven feet tall or a bartender serving a “pint” of beer in a shot glass. Inflation is another way of saying dishonest currency.
It doesn’t work. In the Fed’s first year, the dollar inflated more than it had during all of its previous existence. The Federal Reserve simply hasn’t been effective at maintaining a stable currency.
“The actions to stabilize the financial system were accompanied, both in the United States and abroad, by substantial monetary and fiscal stimulus,” Ben Bernanke explained on Friday. “But notwithstanding these strong and concerted efforts, severe damage to the global economy could not be avoided.”