The Fed

Presented at the Mises Circle in Manhattan: The Fed and War Finance (16 September 2006, University Club, New York, NY).

What is really stopping a much-needed change is public ideology. So long as the political system encourages the idea that government is the savior of mankind, the solver of all human problems, the machine that will bring freedom to the world through tanks and bombs, we are going to have the problem of monetary instability.

Government officials have the incentive and the ability to manipulate economic statistics. The lesson is: don't be fooled by government statistics.

What the American worker needs is more of what Wal-Mart offers and less of what the government offers. If we could then fix the Fed so that it would no longer water down the value of our money, we'd never have to worry about declining real wages again.

The Fed is there to print all the money the federal government will need. There is no limit on its power to do so. We aren't taxed. For that reason, people are not scandalized by the numbers or the corruption. We don't even call it that. There is nothing about the numbers that seems real.

To the extent that government agencies own a portion of the stock market they are engaged in central planning.

This power to create money is what gives the president the chutzpah to go to war without seeking full financing or even much in the way of permission from Congress.

To Mises, freezing money supply did not represent, per se, a desirable money system, even though the consequences derived from it would make such a system appear more in line with a free market economy than the current system of relentless increase in credit and fiat money supply, controlled by the government.

There is no debate that inflation is always and everywhere a monetary phenomenon. With the Fed's policy of deliberately manufacturing inflation we are playing with fire.

In other words, in seeking to boost sales by exploiting the possibilities of modern finance (in a perfectly legal manner), GMAC and Ford Motor Credit, GE and John Deere (among countless others) may have misled our preening, erstwhile Maestro into financing the whole wasteful bubble of the late 1990s!