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The Dangers of the Federal Reserve

|Includes: SPDR Gold Trust ETF (GLD), SLV, UDN, UUP

 This is a classic article I wrote back in 2008, about the irresponsibility of the Federal Reserve and how their inflationary practices create the destructive boom-bust cycles of the economy while destroying. Even with the recent financial crisis, the Fed continues to pump in funds via quantitative easing, which will just magnify the future inflation problems the Fed is setting up. With a record level of debt defaulted by 2008-2010 deleveraging the fact that price levels of consumer goods have not collapsed shows the extent of current Fed created inflation.

May 6, 2008

Usually when one thinks of the Federal Reserve Board, they believe that the Fed stabilizes the value of our currency and the economy. However, the truth is actually the opposite. Since its inception in 1913, the Fed has nearly erased all of the value of the US dollar, created vicious boom and bust cycles that kill the economy while unfairly redistributing the wealth, and transformed the United States of America from the world’ s creditor to the world’s largest debtor and a nation based on debt.

The most damage that the Fed has done to the American economy is the complete debasing of the United States dollar. Since the Fed was instituted in 1913, the dollar has lost ninety-seven percent of its value. Before the Federal Reserve was instituted the consumer price index remained fairly stable for nearly the first one hundred years of America’s history. However, once the Fed came around, they irresponsibly increased the supply of money to artificially boost the economy; and by doing this the dollar has lost its value and high inflation occurs. In fact the dollars recent decline can easily be explained by the Fed’s continual lowering of interest rates and increase of money supply in an inflationary period at a faster rate than the rest of the world. In order to pay for the government’s outrageous deficit spending, the federal reserve prints more money to make for these debts. As a result the added money lowers the value of the existing dollars in circulation. Overall, the Federal Reserve has been the primary cause of inflation since its inception.

The Federal Reserve plays a great impact on the current cycle of boom and bust cycles and the economic instability that has occurred since 1913. In a capitalistic society, ups and downs in an economy are a given. However, the Federal Reserve by artificially altering money supply creates malinvestment to create artificial bubbles such as the Roaring 20’s, the dot-com boom in the 1990’s, and the 2002-2005 housing boom. The consequences of these bad investments are recession and/or depression once people realize the lack of foundation within the booming sector in which they are investing. Along with the devaluation of currency, the boom bust cycle of the Federal Reserve has hurt Americans (especially the middle class) through poor investments and capital losses.

Recently, the Federal Reserve has again cut the federal funds rate by another twenty-five base points recently despite the fact that inflationary troubles already exist. Ben Bernanke seems to be short sighted about rising inflation and the monetary flaws that the Fed instituted to lead to our current recession. Instead he thinks that increasing the money supply will help the economy even though that is what is causing the decline of the dollar’s value internationally and inflation. What can be done to reverse the damage of the dollar and restore sound money to America?

The solution to our monetary problems is disbanding the Federal Reserve and replacing it with the gold standard. Until 1971, the value of the dollar was backed up with a set amount of gold for each note. Once Nixon removed the gold standard inflation became rampant and the dollar has retained less than one fifth of his value since then. The fiat currency originally was based on treasury bonds, but with the recent subprime crisis, the Fed traded these bonds for bad mortgage debt this March. Basically our money is more worthless than zero, it has negative value. What needs to be done is to switch back to the gold standard through competing currencies. Individuals and businesses would be able to choose which money that they for transactions and savings. With the stability of a gold based currency, it would gain favor and ultimately replace the Federal Reserve note. Sound money holds off effectively against inflation and has consistent economic stability and the gold standard provides that while the Fed’s tinkering takes this away.