If asked to name the most dangerous organization on the planet, I doubt that few outside of the Austrian economic community would respond “America’s central bank–The Federal Reserve Bank (The Fed)”. Nevertheless, there is no other organization with such a pervasive and malignant impact over almost all developed civilization than the Fed. I list here four avenues by which the Fed wreaks havoc upon the word–economically, militarily, morally, and politically. Undoubtedly others could list more.
Economic Havoc–Higher Prices and the Austrian Business Cycle
The Fed is the only entity in America with the right to produce base money out of thin air, forgetting for the moment the power of banks to produce fiduciary media via the lending process (not the same thing as base money). The inflation of the money supply leads to higher prices for most goods, of course, but not before enriching the early receivers of the new money–banks, bond dealers, government contractors, etc.–who get the money before prices have risen. Higher prices impoverish the later receivers–main street businesses, retirees, etc. This is known as the Cantillon Effect. In addition, because it sends out faulty time preference signals, the new money disrupts and distorts the time structure of production, leading to malinvestment of capital that ultimately must be liquidated–the Austrian Business Cycle Theory. Higher unemployment follows, because workers were enticed to leave sustainable occupations for unsustainable ones. The capital losses and worker disruptions can never be recovered; i.e., although the economy may recover after money inflation is ended, there is a dead weight loss due to the goods and services that were not produced during the inflationary times. Plus, the economy’s capital base is weakened, meaning that the economy will never be as robust as it would have been absent the money inflation no matter how rosy things looked during the inflationary times.
But the economic disruptions from the Fed’s money printing are not confined to America. We may scoff at Zimbabwe or Venezuela, who destroyed their economies via money inflation but had little worldwide impact. The Fed’s money printing is a different kettle of fish entirely due to the dollar’s position as the world’s premier reserve currency. The dollar is the world’s monetary medium of choice for settling international trade. (According to the International Monetary Fund, In US dollar terms of the $12.8 trillion total central bank reserves $7.1 are held in US dollars. The next most commonly held reserve currency is the euro at $2.5 trillion. Japan is number three at $.7 trillion, and China was number four at $.3 trillion.) Whereas country A’s currency may not be in demand in country B and vice versa, countries A and B can still settle trade accounts in dollars held in their respective central banks. Since the dollar accounts for around fifty-five percent of total central bank reserves, the Fed’s inflationary money printing becomes a pandemic virus that infects the world.
America spends more on its military than the next nine nations of the world combined. This is made possible by several special factors, primarily the above mentioned special privilege of the dollar as the world’s premier reserve currency and the Fed’s ability to monetize the government’s debt, whereby it takes Treasury Department debt onto its balance sheet in exchange for new base money for the Treasury Department to spend on the military. It is commonly acknowledged that the US spent trillions of dollars on its failed twenty year military intervention in Afghanistan. (See this Brown University study.) The US military continues to bomb Somalia to this day. It intervenes in Syria and is still involved in Iraq. The justifications for these interventions are getting harder and harder to swallow, since none of these countries pose an existential threat to the US or its allies. Rather, it is vast migration of refugees from these war torn nations that threaten the peace and stability of Europe and America. Our reflex use of the military, fully funded by newly created money from the Fed, short circuits any discussion of America’s need to get involved in these far off disputes. For example, the US seems to be determined to side with Ukraine in its disputes with Russia. In 2014 the US was instrumental in overthrowing an elected pro-Russia head of state in Ukraine in the so-called Maidan Revolution. Russia is a nuclear power and will be very unlikely to back down in a real shooting war without using all the weapons in its arsenal.
Just as the truth is said to be the first casualty of war, equally so is that truth a casualty of money inflation. This is so due to the ability of the Fed to paper over consequences of poor economic policy. Windmills and solar panels don’t work? No problem. Subsidize them with more money. Raising the minimum wage and foisting more expensive labor regulations on business cause unemployment? No problem. The government will send checks. Naturally, the list of market and personal corruption caused by money inflation is a long one. Market corruptions are always accompanied by propaganda that private capitalism is bad and government socialism is the answer. Personal corruption is worse. Government largess entices many of the working poor to quit working in order to go on welfare. Welfare simply pays more than working, so who can blame them? It is rational self-interest, but at the cost of independence, self-reliance, and pride. These are not the only personal costs, though. Welfare is responsible for the breakup of the family, as documented by Thomas Sowell. Plus, those not on welfare must labor for those who are on welfare, reducing capital accumulation. All this is made possible by money printed by the Fed.
Rule of the People Thwarted
In a sound money environment government spending must be funded by taxes or by honest borrowing, meaning selling debt in the open market in competition with others. Taxes and honest debt create a natural limitation on government spending. People may rebel against higher taxes, and government borrowing crowds out private borrowing by raising the interest rate. A recession is inevitable. By bypassing this essential discipline of the people and the market over government actions, the Fed successfully thwarts the rule of law and diminishes the people’s relationship to their government. Few understand the complicity of the Fed in its ability to buy our acquiescence with money printed in any amount needed to keep us quiet.
Ours is no longer a government of the people, whereby government is our servant. Now the people are ruled by their government. This is a fundamental change that has escaped most Americans.
Conclusion–A Criminal Gang Operating in the Open
It is no exaggeration to say that the real criminal gang destroying our civilization operates mostly in the open and is very proud of its work. Private counterfeiters operate in the shadows. No one claims that they provide a benefit to society. They are thieves. But the Fed is lauded for counterfeiting the dollar on a scale never imagined by private thieves. High officials at the Fed are lionized by a corrupt main stream media for having attained the pinnacle of their professions. There is no reason for these economic charlatans to re-examine the consequences of their policies. For this reason alone it is safe to say that…
THE FED IS THE MOST DANGEROUS ORGANIZATION ON THE PLANET