THE PROGRESSIVE CONSERVATIVE, USA
An Online Journal of Political Commentary & Analysis
Volume XII, Issue # 249, November 13, 2010
Dr. Almon Leroy Way, Jr., Editor
Government Committed to & Acting in Accord with Conservative Principles
Ensures a Nation's Strength, Progress, & Prosperity
THE FEDERAL RESERVE'S MAGIC MONEY
By Alan Caruba
THE FEDERAL RESERVE SYSTEM & THE AMERICAN ECONOMY: THE FED AS A CENTRAL BANK CREATED BY
CONGRESS TO CONTROL THE MONEY SYSTEM BY REGULATING INTEREST RATES & LENDING MONEY TO THE COMMERCIAL
BANKS -- THE CENTRAL BANK'S POOR RECORD IN REGULATING THE NATION'S SUPPLY OF MONEY & AVAILABLE CREDIT IN
ORDER TO MAINTAIN A STABLE CURRENCY & CORRECT ANY SLIDE INTO AN ECONOMIC RECESSION OR DEPRESSION -- THE
GREAT DEPRESSION OF THE 1930S & THE POOR PERFORMANCE OF THE FEDERAL RESERVE -- CURRENT ECONOMIC
CONDITIONS & THE FED'S EFFORTS AT "QUANTITATIVE EASING" -- THE ERODING VALUE OF THE U.S. DOLLAR
FULL STORY:
Historically, the Federal Reserve has had a poor record when it comes to correcting an economic slide into a depression.
In his book, New Deal or Raw Deal? historian Burton Folsom, Jr, asked and answered this question: “What
caused the Great Depression?” Among the factors he cited was the huge debt left over from World War One. In the
United States, the national debt had ballooned from $1.3 billion to $24 billion in three short years, half of which consisted
of loans made to the allies.
Today, the U.S.A. is feeling the impact of the aftermath of September 11, 2001, when military action was taken, first in
2001, and then in 2003. We are still in Afghanistan and Iraq, without much to show for it. As opposed to short,
preemptive, lightning strikes, we have become involved in “nation building.” Forgotten is the fact that it was the
Russian intervention in Afghanistan that ultimately brought down the former Soviet Union.
In the 1930s, in addition to tariffs on imported goods, “The third cause of the Great Depression was the poor performance
of the Federal Reserve,” concluded Folsom. “The Federal Reserve was created in 1913 to control the money system by
regulating interest rates and lending money to banks.”
In an eerie way, Raymond Moley, a member of Franklin D. Roosevelt’s “brain trust” of advisors and an initial advocate of
the New Deal, reflects the widespread perception of Barack Obama today. In 1933, Moley broke with FDR and became a
Conservative. Following a meeting with FDR, Moley recorded his observations.
“I was impressed as never before by the utter lack of logic
of the man, the scantiness of his precise knowledge of
things that he was talking about, the gross inaccuracies
in his statements, by the almost pathological lack of
sequence in his statements, by the complete rectitude
that he felt as to his own conduct, by the immense and
growing egotism that come from his office, by his
willingness to continue the excoriation of the press and
business in order to get votes for himself, by his
indifference to what effort the long continued pursuit of
these ends would have upon the civilization in which he
was playing a part.”
This description of FDR is, in astonishing ways, a mirror image of Barack Hussein Obama.
The dissatisfaction that Moley expressed has been manifested in the immergence of the Tea Party movement and the
rejection of many in Congress who supported Obama’s agenda, including Obamacare, his failed efforts to jump-start
the economy with large, temporary stimulus bills, temporary housing rebates and business tax credits, and the
one-time cash-for-clunkers program that followed the federal takeover of General Motors and Chrysler.
There are harsh facts being ignored about the present economic crisis. More than 42 million Americans were on food
stamps in August, 2010, an all-time record and a number that is 17% higher than a year ago. The U.S. is experiencing
massive unemployment and the American Bankruptcy Institute predicts there will be an estimated 1.6 million
consumer bankruptcies this year.
The U.S. government is completely and totally broke. A Boston University Economics professor, Laurence J.
Kotlikoff, has concluded that the U.S. government is facing a “fiscal gap” of $202 trillion dollars.
John Allison, who, for two decades, served as Chairman and CEO of BB&T, the nation's 10th largest bank, told
CNSNews.com that it is a “mathematical certainty” the United States government “will go bankrupt, unless it
dramatically changes its fiscal direction immediately.”
Having tried “Quantitative Easing” (QE) once already, the Federal Reserve is undertaking a second effort. It consists
of printing magical money and using it to purchase U.S. Treasury securities. QE-1 cost $1.7 trillion and did not work.
QE-2 will fail as well, to the tune of $0.9 trillion.
The U.S. dollar has lost 50% of its purchasing power since 1986, and it has dropped 11% in value since June of this
year.
Writing in the November 8, 2010, edition of The Wall Street Journal, Kevin M. Warsh, a member of the Federal
Reserve’s Board of Governors, went public to warn against QE-2. “Fiscal authorities should resist the temptation to
increase government expenditures to compensate for shortfalls of private consumption and investment,” said Warsh,
who urged “a strict economic diet of fiscal austerity.”
Whether it is Congress or the Federal Reserve, the failures of the present reflect the failures of the past. Major surgery
is needed to pare the entitlement programs of Social Security and Medicare. Instead, Obamacare added millions to the
Medicare rolls.
The government sponsored entities, Fannie Mae and Freddie Mac, need to be privatized to avoid using billions more
in public funds to save them and the too-big-to-fail banks that engaged in “liar’s loans” -- mortgage loans that
ignored prudent lending practices, resulting in the housing market collapse.
The Troubled Asset Relief Program (TARP) did work as an emergency measure, but the government has got to stop
being the lender of last resort. It’s our money.
The Federal Reserve is contemplating the creation of “magical money” at a time when the U.S. economy is in deep
trouble. It is a trouble that can only be cured by retaining the Bush tax cuts and by simplifying the current insane tax
code. Why is there such slow growth? American corporations pay the second highest tax rate in the world.
The burden of federal regulation must be reduced. Economists W. Mark and Nicole Crain, noted in a September
Wall Street Journal article that “The annual cost of federal regulations increased to more than $1.75 trillion in
2008, a 3% real increase over five years, to about 14% of U.S. national income.”
The President’s original economic advisors have departed. They, like Raymond Moley in the 1930s, know that he is
either clueless and/or resistant to any pragmatic solutions.
The midterm elections gave power to the Republicans in the U.S. House of Representatives, the branch of Congress
from which all financial bills must originate. Failing to do the same in the U.S. Senate, it may take two years to repeal
Obamacare, but efforts must be taken to defund it, to render it inoperable. The U.S. Courts may offer relief with a
decision that it is unconstitutional.
When the new Congress meets in January, 2011, every pressure possible must be brought to bear on the Federal
Reserve to stop short-term failed “solutions” before the U.S. dollar is utterly debased.
© Alan Caruba, 2010
LINKS TO RELATED TOPICS:
Political Economy -- Philosophies, Systems, & Public Policies:
Government, the Economy, & Economic Prosperity
Fiscal Policy: Taxation & Government Spending
Social Welfare Policy -- The Modern Welfare State
Alan Caruba writes a daily post at http://factsnotfantasy.blogspot.com. An author, commentator and business and science writer,
he is the Founder of the National Anxiety Center, a clearinghouse for information about "scare campaigns" designed to influence
public opinion and public policy.
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THE PROGRESSIVE CONSERVATIVE, USA
An Online Journal of Political Commentary & Analysis
Dr. Almon Leroy Way, Jr., Editor
Conservative & Free-Market Analysis of Government, Politics & Public Policy, Covering Political, Legal, Constitutional, Economic,
Cultural, Military, International, Strategic, & Geopolitical Issues
Conservative Government Ensures a Nation's Strength, Progress, & Prosperity