The Fed

Industry concentration is not usually a problem in the free market, writes Christopher Mayer. But the banking industry is hardly free.

So Greenspan says that Freddie Mac and Fannie Mae are so big and so out of control that they represent a threat to the whole financial system. Well, asks Frank Shostak, just how does Greenspan think they got to be that way? Might it have something to do with a central bank that guarantees the life of not only these two institutions but every bank in the US?

Boom, Bust, and the Future (28:31) January 18-19, 2002

Recorded at the Mises Institute, May 1994.

In a recent testimony, Greenspan argued that we must be grateful to the Fed for its loose interest rate policy since January 2001. Without this policy, he suggested, we would probably be suffering a terrible economic slump by now. Shostak's analysis, however, shows that instead of strengthening in financial conditions, the Fed's policy produce the exact opposite. The data show an unsustainable recovery and deteriorating underlying conditions.

Federal Reserve Chairman Alan Greenspan testified before the House Financial Services Committee on Wednesday and the Senate Finance Committee on Thursday. As usual, Wall Street and financial journalists were all in a tizzy. The Dow reached highs not seen since 2001, and the S&P 500 reached recovery highs. Bonds and the dollar scurried off in opposite directions.

Before the Fed blessed this country with unlimited liquidity, American history saw two previous attempts at creating a centralized institution of money and credit: the First and Second Banks of the United States. Both generated financial havoc, and were rightly opposed by the champions of freedom and sound money. Historian Scott Trask explains.

The answer is no, says Joseph Salerno. The Fed's performance has been astoundingly bad throughout Greenspan's tenure as Chairman. Perhaps worse, Greenspan has been a relentless purveyor of economic fallacies designed to obscure and justify this egregious performance. However, his departure from the stage might not be cause for unalloyed joy among proponents of sound money—Ben Bernanke could be lurking in the wings.

The disappearance of gold from the monetary scene is perhaps the most tragic economic calamity to befall the world of money in the twentieth century, writes Christopher Mayer. Views on gold in the first two decades of the twentieth century compared to those held today could scarcely be more different.

The consultation of oracles, a practice long thought dead, continues on today in many forms, perhaps in a more subtle and less institutionalized than during antiquity, but powerfully nonetheless. The head of the Fed, writes Christopher Mayer, is a good example.