Priebus on Trump’s Minority Outreach: “He’s Trying” (Bless His Heart)
Reince Priebus isn’t from the South, so the “Bless His Heart” part is really just implied instead of explicitly stated.Read More »
Today’s centennial anniversary of the creation of the “Third Bank of the United States”, legally titled the Federal Reserve, seems a good time to reflect on its mostly unchecked power, role in causing and preventing financial crises, and obvious inability to return an economy to health made sick by failed fiscal and other economic policies imposed by the federal government.
The Federal Reserve System was born via an act of Congress this date in 1913 after secret meetings of “First Name Club” plutocrats on Jekyll Island, Georgia in response to a devastating series of financial crises beginning with the (first great) depression of the 1870s and culminating with the Panic of 1907 and subsequent deep recession. Not content to chance that there would be no benevolent J.P. Morgan to save the banking industry after the next such panic, President Woodrow Wilson eschewed the last vestiges of Jacksonian-Democratic Party-aversion to a central bank and signed the Owen-Glass Act creating “The Fed”. (video commemoration below)
Thomas Jefferson and Andrew Jackson opposed the Alexander Hamilton-inspired First and Second Banks of the United States (BUS) as unconstitutional, but opposed them mainly because of their fear that such institutions would be a tool of collusion between powerful moneyed interests and government. DeVine Law thinks the Constitution’s “Necessary and Proper” clause, coupled with the Article I, section 8 power of Congress to “To coin Money, [and] regulate the value thereof”, makes The Fed dispenses with the former objection. But as to the latter, clearly the verdict must be guilty as charged.
However, before the creation of the First BUS and during interregnums between its termination and the creation of the Second BUS and the latter’s termination and the creation of The Fed; powerful moneyed interests colluded with government officials for their mutual benefit. This will always be so, whether the United States adheres to a strict gold standard, has an all-powerful central bank or any combination in between. Hence the Founders’ wisdom in limiting the power of government and separating its powers between states and three federal branches.
In the absence of a central bank, the first “central” tax led to a Whiskey Rebellion that required a sickly President George Washington to renew his role as Commander-in-Chief of a standing army to quell; and reckless Jeffersonian and Jacksonian policies led to panics and recessions. More such regular and periodic fluctuations of the business cycle followed throughout the 19th Century that, in our estimation, make no case for a return to a Fed-less America.
Yes, America has endured another Great Depression, admittedly partially caused by The Fed’s inexplicable restriction of the money supply following the 1929 stock market crash, 1970s stagflation, and post-Tech Bubble and post-9/11 low-interest rates imposed by the central bank that certainly contributed to the Housing bubble and bust that ushered in the now five year’s long-and-counting jobs depression and anemic so-called “recovery”. But, we think that most of the blame for the “greatness” of the 1930s depression, 70s stagflation and the misery of the 21st Century-to-date, must be laid at the feet of a federal government that has spent, taxed and regulated the life out of the economy; with the Fed mainly reacting to destructive non-Fed-related government policies with damage control measures.
The Fed can’t fix with near-zero-interest rates in perpetuity what liberal Democrats break with high taxes, market-distorting regulations, and welfare dependency.
Human nature being what it is, bubbles will always occur whether government under- or over-regulates and whether there be or not be a central bank; but free markets and the regulator of price make for the fastest recoveries. Government-caused bubbles are the most destructive, especially when compounded by government-run supposed remedies.
One need only review FDR’s “New Deal” that prolonged a stock market bubble into a decade of fireside chats in Hoovervilles to dispense with any notions of wisdom in government “Brain Trusts”.
We think the main value of The Fed is its ability to react quickly with liquidity to shorten financial panics when they inevitably occur and to facilitate natural economic growth with predictable and prudent increases in the money supply that protect the value of the dollar to fight inflation. The gold standard was just too restrictive for a non-agrarian economy in our opinion.
But The Fed should be reined in by the Congress that created it. It should not have unlimited powers to create money or buy assets at its whim, and of course it should be audited. Timid lawmakers that have institutionalized Wizards of Oz behind curtains is a disgrace.
Fed Chairman Ben Bernanke’s main goal after the Housing Bust was to make sure his tenure did not repeat the mistake of the 1929-32 Fed that restricted liquidity at precisely the wrong time. He has succeeded in that endeavor, and despite the increase in energy and some food prices, we don’t think Fed policies are primarily to blame. We blame federal agricultural and energy policies. And obviously, despite epic quantitative easing, we have not seen a repeat of the late 1970s levels of price hikes.
The only way our anemic economy can be fixed is by repealing laws and reversing policies imposed mainly by liberal Democrats since the late 70s, and especially by the Obama Administration for the last five years. Yes, Republicans have held power at times over the past 35 years and at times marginally contributed to the problems; but, unlike Democrats in the 30s, late 60s, late 70s and from 2009-10, they have never held the executive and legislative branches with a filibuster-proof Senate that would have enabled them to repeal the most onerous wealth and job destroying enactments of Democrats.
The only way to fix the Fed and America’s economy is for electoral majorities to learn not to love Democrats and act upon that knowledge on election days. History shows that throughout the 19th and 20th centuries America became the most exceptional nation the world has ever seen, and their is no reason we can’t end the current regression by returning to the more conservative free market capitalism that made us so, no matter the particular machinations of a central bank.
Happy Birthday Fed!
“One man with courage makes a majority.” – Andrew Jackson