End Fed’s power; give it to free mar­ket

The Washington Times Daily - - Nation -

Ron Paul wants to abol­ish the Fed­eral Re­serve. He may be right: It is hard to see how the Fed has en­hanced our econ­omy. Since 1971, when Pres­i­dent Nixon ended the gold stan­dard, the dol­lar’s value has been more volatile than in any pre­vi­ous pe­riod, not only in im­me­di­ate, day-to-day volatil­ity, but also over the long run. Peo­ple of­ten mar­vel that a loaf of bread used to cost a dime, but they never ask why so much in­fla­tion has oc­curred over these past few decades.

There are sev­eral rea­sons, but the big­gest is un­doubt­edly the Fed. By de­valu­ing the dol­lar, like China is do­ing to the yuan, the Fed and its tech­nocrats try to en­cour­age our ex­ports. But as we know, the mar­ket will not per­mit dis­tor­tions, and will pun­ish them: This is bad pol­icy.

Quan­ti­ta­tive eas­ing, au­thor Louis Lehrman says, is just “a eu­phemism for money print­ing or credit cre­ation.” These ex­cess dol­lars go abroad as re­serves, and are then in­vested in U.S. se­cu­ri­ties to fi­nance the deficit. So, we re­ceive back what we give out: We buy with­out pay­ing. If eco­nomic growth were this easy, why stop print­ing money?

The Fed cre­ates de­mand for goods and as­sets with­out in­creas­ing sup­ply. This is a recipe for crip­pling in­fla­tion; it is an in­sult to hard­work­ing Amer­i­cans who want to pass down their wealth to their chil­dren and not see it turn to worth­less pa­per.

Thus has the Fed has not only fed our con­sumer cul­ture by fi­nanc­ing the na­tional debt, and dis­cour­ag­ing sav­ings by weak­en­ing the dol­lar, but it has also masked the prob­lem of van­ish­ing Amer­i­can ex­ports, mak­ing the sit­u­a­tion look bet­ter than it re­ally is. How ironic that this ve­neer of health is ac­tu­ally help­ing for­eign im­ports!

One of the many causes of the Great Re­ces­sion, from which we are now still strug­gling to es­cape, is the seem­ingly end­less Fed­eral Re­serve sub­si­dies (that’s what they are) to the world bank­ing sys­tem.

Not only did the Fed help cause the re­ces­sion, but it has slowed the re­cov­ery. By keep­ing in­ter­est rates low, they have hurt savers and pen­sion funds, when our na­tion needs above all more sav­ings. Who wants to save a thou­sand dol­lars an­nu­ally only to re­ceive 25 ba­sis points or $25 a year from their bank?

There is a cer­tain irony that the fi­nan­cial re­ces­sion was caused by overex­tended lend­ing in the real-es­tate sec­tor and the Fed’s so­lu­tion is to re­duce in­ter­est rates in that sec­tor of the mar­ket. Does the Fed, truly, want to en­cour­age Amer­i­cans to bor­row more money to in­vest in real es­tate? Our money sup­ply has about tripled. Is this not an in­fla­tion nightmare wait­ing to hap­pen?

Rep. Ron Paul of Texas de­serves credit (if you par­don the pun) for rais­ing the ques­tion of mon­e­tary pol­icy among the gen­eral elec­torate. We must ex­am­ine the wis­dom of its in­de­pen­dence from con­gres­sional over­sight. A more mod­er­ate view, one we should all be able to agree on, is that the Fed­eral Re­serve must be sub­ject to a public au­dit of its ac­tiv­i­ties. Surely no one on ei­ther side of the aisle thinks it wise to put so much power in the hands of so few with­out any check or bal­ance.

Steve Forbes, in­vest­ing and busi­ness ge­nius, says that it is al­most in­evitable that the United States re­turn to the gold stan­dard, which would com­pletely take away the power of the Fed to ma­nip­u­late the mar­ket and ma­nip­u­late our lives. An­other irony is that it is our friends on the left who fear this change and wish to pre­serve the sta­tus quo, afraid of the con­se­quences of restor­ing con­vert­ibil­ity to gold sim­ply be­cause we haven’t done it be­fore.

By tak­ing away the power of the Fed and giv­ing it to the free mar­ket, we will all ben­e­fit. The mar­ket, not even the bright­est and best­con­nected of our tech­nocrats, knows best how to al­lo­cate re­sources.

Mr. Paul is 76, and if John Mccain was too old to be pres­i­dent, then so is he. But he has al­ready ac­com­plished a tremen­dous legacy of en­er­giz­ing young peo­ple about lib­erty, and awak­en­ing us all to the quiet power of un­elected men and women who tinker with our lives. He will be a sym­bol for years to come.

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