Federal Reserve: A 100 Year Old Failure

While there is serious politicking going on for both Larry Summers and Janet Yellen, will it really matter whether it is one or the other running this institution?

Perhaps at the margin and for optics the choice of Summers vs Yellen might matter, but in the grand scheme of things neither of these individuals is going to redirect the Federal Reserve from its failed policies. You don't think so? 

Many maintain that if not for the Federal Reserve, our economy would be far worse off than it is currently. I would encourage those in that camp to take a slightly wider angled view of things.

Those unaware should realize that the Congress established the statutory objectives for monetary policy–maximum employment, stable prices, and moderate long-term interest rates–in the Federal Reserve Act. So from a wide-angled, long term perspective, just how is the Fed doing?

I would maintain that the Fed engages in little more than manipulating our currency via systemic and protracted devaluation so as to game international trade and inflate asset valuations in the hope that both might promote increased consumption here at home. In the end and in reality, the Fed's banking friends are able to ring the register while the rank and file consumers and taxpayers get stuck with ever larger bills.

How is the Fed doing on achieving stable prices? From a US Inflation calculator, we learn

If in 1913, I purchased an item for $20.00, then in 2013, that same item would cost $471.73 for a cumulative rate of inflation of 2258.6%

So much for stable prices.

The artifice played by Uncle Sam and his friends at the Fed has allowed for the basket of goods used to compile our rate of inflation to be gamed so as to try to keep the reported rate of inflation down. What we have generated in reality is an overall declining standard of living at our core that Uncle Sam and Fed have been able to disguise due to technological advancements and innovation. Do they deserve credit for those developments? They would certainly maintain that they do so as to offset their massive failures elsewhere.

In regard to full employment, if we were to utilize the same measures practiced back in the day, our current unemployment rate would be well north of 20%.

I will grant that the Fed has company in achieving these massive failures but the Fed owns plenty of the mess as well.

So what should the Fed be doing? Admit failure, stop pushing and printing paper dollars, and acknowledge that real health, wealth, and prosperity are achieved through increased innovation and productivity that stem from policies that promote a strong dollar and real protection of investment capital.

Might Summers, Yellen, or anybody else in and around Washington both preach and practice these principles? I am not holding my breath but if we can find an individual who embraces them, then whomever it is should be the next chair of the Federal Reserve.

I do realize that the chances of this debate even unfolding in Washington are slim and less than that but we'll go down fighting. In the meantime, if you see Suumers, Yellen, or any of their supporters perhaps you can ask them for their historical perspectives on the value of the dollar, stable prices, and unemployment. I would be interested in their answers.

Navigate accordingly.

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.