If one is to judge the efficacy of an institution by the policies it promotes, the decisions it makes and the results of its actions then the Federal Reserve Bank System has been one of the most dismal failures in history. Aside from the side-effects of an absolute fiat monetary system, such as the drastic depreciation of the purchasing power of the currency; the FED has not preformed well in the prevention of instability in the economy, just the opposite, it has created a long list of boom and bust cycles since the Federal Reserve Act was passed in 1913.
Just look at its record: 3 Depressions in the 20th Century; the first was in 1920-1921, the next was 1929-1933 and the next was 1937-1938. There were sharp Recessions: 1923-1924, 1948-1949, 1953-1954, 1957-1958, 1973-1975, and 1981-1982. 1987. Then there were 7 mild Recessions: 1926-1927, 1960-1961, 1969-1970, 1980, 1990-1991, 1999 and then 2001 brought on by the events of 9/11 and of course the latest FED fiasco that we are now witnessing. That is not the best record in the world for the Federal Reserve System and Keynesian Economics.
The long-term monetary policy promoted by the FED, this government and other countries, is ruinous. It is based on a game that relies solely upon the illusion of value, the deception of debt wealth. It is, simply a catastrophe that is literally unfolding before our very eyes. Any dependence by any society upon such an inconspicuous system of gradual monetary depreciation is, to say the very least, unwise, shortsighted and poses a very real danger to the future well being of the People.
Of course, such an inflationist fiat monetary system allows the government to expand everything politicians can dream up without resorting to a drastic increase of taxes on the People, this helps the government avoid such nasty and potentially dangerous acts of over-taxation; nevertheless, inflation is, perhaps the most insidious means of tax ever devised. It not only drains a great deal of productive wealth from the country, but it promotes government expansion, poor decision making and misguided polices.
The loss of productive wealth is probably the most damning result of fiat money; it impedes progressive commerce in ways that few understand. It is so damaging to the ability to judge the time value of our money that businesses, particularly those involved with long-term capital investments cannot accurately rely upon the future value of their money. Thus the true cost of capital always evades commerce, encouraging malinvestments and bad decisions; it is a sloppy system of money. Since there is never a clear signal upon which businesses can draw upon, especially when it comes to the manipulation of interest rates by the FED, it is an unreliable indicator of time preferences which, under a free-market system, coupled with sound money, would give such indicators and allow for far better decision making with both monetary and business movements.
Based upon the monetary and credit polices of the FED, commerce should have experienced a steady growth due to the injection of money and credit into circulation however, this does not appear to be the case. Now, based of FED figures, monetary growth and credit there has been an increase close to a factor of 90% between the periods of 1950 and 2008, yet we do not see a comparable rate of economic growth, the truth is that we see just the opposite, a declining growth rate and a drastic decrease in the purchase power of the dollar. In fact, judging other indicators, such as the amount of debt it now takes to generate even a dollar's worth of economic growth our country is on a precipice from which there can be no retreat, at least as long as this monetary system continues to drain away all viability from the economic system.
Without doubt, there are those apologists for the currency fiat monetary system and the economy that has been built upon it who sing the praises of its elasticity, its flexibility when just the opposite is true. What they actually heap their praise on is government intervention through the implementation of the Federal Reserve Bank. It is not, nor can it be a long-term solution, such systems always fails in the end. They shout that in order for the economy to keep going, for it to grow there must be a constant and consistent supply of money injected into circulation. While that is perfectly true for a fiat monetary system, it does not hold true for a sound monetary system. It is not the number of dollars floating around in the economy that matters, but the effective purchasing power of each dollar that assist in the productive creation of commerce and, in turn, wealth. With fiat money, central banking intervention and manipulation always depreciates the purchase value of money to the point that the only impetus for economic growth is the injection of even more money and credit into the system. This is, of course, a precarious road to travel upon.
Eventually, of course, this great inverted pyramid of debt that they have helped create can no longer be balanced. The debt and inflation become impossible to maintain to the point that the FED will be increasingly unable to create more debt to create more money to effect its balancing act. Thus far, the only thing keeping the entire system afloat is the fact that up until now they have been able to continue the process, but as you and I will soon see, that will no longer be possible. It is becoming evident that as the debt looms larger and larger, it will siphon all profitability from the economy because the economy can simply not service that galactic degree of debt.
There is currently an effort by the FED, the Treasury and this government of a great postponement; one that will barely slow the crisis, for it is systemic not only in its nature but the flaws within the system are inherent. There is a very real dual deterioration taking place at the moment, one involves a deflationary trend in banking, credit and business, the other is a massive inflationary trend taking place as the FED injects truly unbelievable amounts of credit liquidity and money into the system. There are other even more ominous threats to our economic survival on the horizon, of which there will be few options left the FED in its ability to divert disaster. Soon, there will be massive defaults, on such a scale that this country has yet to see in its history.
It has assisted in creating a vast black hole of debt one that has been steadily sucking the life from this country and its people. The only thing, and I mean the only thing that is keeping the entire system hobbling at the moment is the ability of the FED to keep the “printing-press” running at full speed. The problem of course is that the debt is multiplying faster than the FED can print itself out of the hole. The FED is constantly attempting to push that event horizon out in time, creating a lag-time between now and the “Reckoning”.
It is, of course, becoming more and more difficult for the FED to keep the spread from narrowing. As we know, the people of this country are woefully unaware of just what is taking place and because there is a delay between the actions of the FED and the reactions within the economy this allows problems to go unnoticed until they are upon us.
Eventually, the entire system becomes unmanageable, stress-cracks simply become too common and too deep to contain with the normal actions taken by the FED, as we are seeing. At this point, the decision-making process is much more akin to a stab in the dark than anything resembling sound monetary and economic policy.
We are seeing signals of a monetary system that is heading for the bone yard. The expansion of bank credit an money, thus more debt, all sponsored by a central bank which has proven itself incompetent since its inception in 1913, will begin to demand far more than the economy will be able to produce. As I have stated, time and again, this fiat monetary system and the economy it supports will end in a massive insolvency. Instead of taking appropriate actions to combat this, the FED is doing exactly the same thing that brought about every boom and bust cycle our country has seen since the 1920s. It is lowering interest rates, pumping mind-boggling amounts of fiat currency into the system and thus they are simply distorting an already inflated economic and monetary distortion by their actions. All of this leads to a very unsustainable level of debt and that debt will begin to demand even more service the larger it becomes. The central banks of the world now find themselves in the classic Catch 22, a circular equation with no solution.
We are at the point that the FED, the Treasury, the Government will no longer be able to mitigate the cascade of problems with any real effectiveness. The problems are now much larger than the institutions which seek to control them. In fact, the problems are now larger than the government which seeks to maintain its power and control, it will also be a victim of its own creation.
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