Monty Pelerin's World

Economics, Finance and Politics Through The Prism of Classical Liberalism

Fed Under Fire -- Throw on More Logs

Fed Under Fire -- Throw on More Logs

“The bold effort the present (central) bank had made to control the government … are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.” President Andrew Jackson

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs.” Thomas Jefferson

Warnings about central banks are not new. Economists and statesmen recognized the dangers. The secrecy and duplicity that were involved in the formation of our Federal Reserve back in 1913 was probably the equal to the sausage-making and unpopularity of the so-called health care reform. Many books and articles have been written about the secret meeting at Jekyll Island. One even has the clever title of The Creature from Jekyll Island. A google search on “Fed Jekyll Island” will bring forth an enormous reading list.

For many, the “alternative” literature regarding the Fed was considered conspiratorial. No Money and Banking textbook has ever questioned the existence of the Fed. Innumerable students of economics were taught and blindly accepted the fact that the Fed was necessary to the smooth operations of a modern economy. The Austrian school of economics has always questioned central banking. For them, the central bank and its relationship with the banking system was the primary cause for the boom-bust cycle. These conclusions pre-dated the formation of the US Fed and are generating increasing interest as a result of the current economic crisis. For access to this literature, visit The Mises Institute.

The current economic crisis has put the Fed under a microscope. Past secrecy is being peeled back slowly and politicians and the public clamor for more. The mystique of the Federal Reserve has been tarnished. The fraudulent nature of the institution, warned about by our founders and thought to be prevented by the Constitution is becoming apparent. As a secretive organization unaccountable to voters, the Fed is increasingly under attack.  The Daily Bell concludes:

What is abundantly clear is that the powers-that-be are willing to tolerate severe joblessness and continued economic misery rather than go outside the pretend-system of money distribution. It would have been relatively easy to take a tiny percentage of the trillions distributed and provide those funds directly to the West’s industrial base. Such a precedent, which likely would have done a great deal to ease the “credit crunch” would have revealed the fiction of the current system, however.

As the Fed is slowly stripped of what clothes it has left, the picture does not get any prettier. At some point, the focus must shift from policies to the question of why we even have a Fed. That will undoubtedly lead to an investigation of the need for fractional-reserve banking, an investigation long overdue.

Unless and until both are eliminated, economies are destined to repeat crises like we are currently going through.

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