Sunday, December 16, 2007

This is Rich

From Yahoo:

"We have an obligation to prevent fraud and abusive lending," the Fed chairman, Ben Bernanke, said earlier this year. "At the same time, we must tread carefully so as not to suppress responsible lending or eliminate refinancing opportunities for subprime borrowers."
The chairman's comments indicate a greater hypocrisy because it is the Fed's continuous suppression of interest rates and liquidity injections that allowed the "subprime mortage" market to be created in the first place. Just in the past year, there have been 3 cuts in the federal funds rate, (the latest happening just this week) and with each cut, there is growing anxiety that the country is heading towards recession. If there were ever a case to made about fraud and abusive lending practices, examining our central bank would should be the first stop.

That we don't question, or just accept the necessity of a Fed shows how economically illiterate most of us are. There were 2 previous central banks The First Bank of the United States (1791-1811) and The Second Bank of the United States (1816-1836). After that, this country operated without one until 1913. In that time frame, from 1800 to 1913, consumer prices remained stable with no inflation. From Grandfathers Inflation Report:

Even up until before World War II a dollar was still worth around the same amount as it had been for the previous 140+ years.

Not that there weren't problems with the monetary system back then, there were. Liquidity and inelasticity in currency were the primary criticisms. If there wasn't enough money in the system for lending for example, growth could be stifled. After a series of financial panics around the turn of the century, calls for reform to the monetary system began to gain traction. But, like what happens most of the time, the government "solution" ends up being worse than the problem it is trying to solve.

Like every other government program, the results of any particular legislation or program is always inversely proportional to the grandiose goal or vision that the program is supposed to achieve. For example, the Patriot Act was supposed to give the government the tools necessary to fight terrorism abroad and domestically and make our country safer, that those tools are primarily being used to spy on the very citizens it is supposed to protect without warrants or due process is a good example.

That's the way it is with the Federal Reserve Bank. It's stated mission is to provide stability to the money system and to help foster economic growth. A glance at the above chart shows that instability in the currency is only accelerating (especially after all ties of the dollar to gold were completely severed back in the 70's) and we as a country have come to accept inflation as a part of life. Will there be a time in this country like in pre-WWII Germany where people would get paid in the morning and the rate of inflation was so great that people would lose half of the value of their money before the end of the day? It's very possible. Social Security and Medicaid are huge unfunded liabilities that only loom closer with each passing day.

It fills me with dread that no one, save Ron Paul, is even talking about this as a campaign issue. That our economic well-being is a national security issue greater than ANY terrorist threat (even a nuclear one) must be recognized. Just like a plane in flight, our economy is going to come back to earth one way or another.

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Conservative Belle said...

how economically illiterate most of us are

I fall in that category. *sigh*

Randolphus Maximus said...

As long as you put your money in gold or other hard assets, you should be alright

Conservative Belle said...

I don't think I have any real money in gold. And it's too bad, really, because I like the bling. :P