The Federal Reserve system is the greatest single threat to personal freedom in America. It is a monolithic, all powerful institution that has supreme capability to play God with our lives. The Federal Reserve governors, and its Chairman, behave like Soviet price control committees, centrally determining the price of America’s most precious commodity, its currency.
Combined with unconstrained federal spending and political promises, America-once the most prosperous nation in the world-is broke. What a disaster!
Did it make sense for Moscow committees to determine the price of bread for everyone in the Soviet Union?
Take a good look at this picture and then tell me how good of an idea it was. Why are there armed men in the picture? Why is there a line?
Prices have a basis in reality. They reflect all input costs of production and relative value compared to other economic products. Prices can, and are, different for the same thing in different locations. There are an infinite number of factors that go into pricing for anything.
To arbitrarily set a price, a universal price, that everyone pays for the same thing, ignores reality and distorts markets. If prices are set higher than market equilibrium you will see surplus and when they are set below equilibrium you will see shortage. These are the rules of nature…you cannot circumvent them.
The same thing that is true for bread is true for cars, gasoline, electricity, water, seats at a football match, and money. Federal Reserve interest rate targets distort our economy, either creating shortages or surpluses. Money supply varies with interest rates and amount of money in circulation, which means the consequences of monetary policy are either inflation or deflation.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. – Thomas Jefferson, 1802
Every economic action we take is impacted by stability in the money supply. For instance, the housing boom was largely caused by loose monetary policy. The Federal Reserve intentionally dropped interest rates to historical lows to artificially stimulate the economy after 9/11. Well, they got what they wanted and housing prices went nuts. Regular people with no understanding of monetary theory, or say in how money was priced, were given incentive to behave irrationally, thinking they could afford what they could not, or get rich quick.
Central bank incentives to behave irrationally caused the financial crisis and its subsequent economic mess. This is the currency equivalent of a bread line.
The causal effects have not manifested themselves fully, and there will be a lot of economic pain in the coming years as reality forces society to conform to its boundaries. Wishful thinking on the part of central bankers and politicians will not change the rules of Nature, regardless of how arrogantly they make their claims.
Worse, still, is the Central Bank’s ability to cause inflation and deflation. These are both monetary phenomenon, in which prices rise or fall as a direct consequence of expansion or contraction of the monetary base. This is where real disaster can befall a society, when its government monopolizes currency issue and uses this power to pay for its own unconstrained expenditures.
The greatest threat facing America today is not terrorism, or foreign economic competition, or illegal immigration. The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch – Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference – that threatens to impoverish us by further destroying the value of our dollars. -Ron Paul
America is on a destructive path that seems to be accelerating. An article by the SF Gate reports that federal commitments to the financial rescue have reached $8.5 trillion. None of this money was taken from a government savings account; it was created out of thin air. Combine this with the current national debt of $10.6 trillion and you see we have a big problem looming.
The biggest fallacy of economics is that spending equates to prosperity. Under equilibrium conditions spending can act as a proxy for prosperity, but over time policies to promote perpetual spending distort economies, invariably leading to overspending and destitution. Consider that America has $52.7 trillion of unfunded liabilities for entitlement programs and other explicit government commitments, and you see we are already destitute as a nation. It is just a matter of time before our lifestyles reflect this reality.
Politicians talk about “fixing” the economy by promoting more spending. They will borrow and spend on our behalf whether we like it or not. They say this will somehow fix everything. They are drinking some funny punch! America needs to suffer. We need to conform our behavior to reality. It is just a matter of how we go about doing that-now, or a decade from now when our entire economic system implodes?
We must let markets behave naturally, shedding excess capacity-meaning lost jobs and bankruptcies as the least valuable activities cease-increased savings, debt repayment, and overall balance sheet realignment, for governments and citizens. Until this happens, America will continue to see its prosperity and global influence wane.
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