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Last week
I held a hearing to examine the various proposals that have been put forth
both to mend and to end the Fed. The purpose was to spur a vigorous and
long-lasting discussion about the Fed's problems, hopefully leading to
concrete actions to rein in the Fed.
First, it
is important to understand the Federal Reserve System. Some people claim it
is a secret cabal of elite bankers, while others claim it is part of the
federal government. In reality it is a bit of both. The Federal Reserve
System is the collusion of big government and big business to profit at the
expense of taxpayers. The Fed's bailout of large banks during the financial
crisis propped up poorly-run corporations that should have gone under, giving
them a market-distorting advantage that no business in the United States
should receive. The recent news about JP Morgan is a case in point. JP
Morgan, a recipient of $25 billion in bailout money, recently announced it
lost another $2 billion. If a corporation shows itself to be a bottomless
money pit of "errors, sloppiness and bad judgment," the Fed
shouldn't have expected $25 billion in free money to change that or teach
anyone a lesson in fiscal discipline. But it determined that this form of
deliberate capital destruction was preferable to one business suffering
bankruptcy. Clearly, some changes need to be made.
Several
reforms for the Fed were discussed at the hearing. One was a call for the
full employment mandate to be repealed, in order to allow the Fed to focus
solely on stable prices.
Another
reform calls for changes to the composition of the Federal Open Market
Committee. Still another proposal was for outright nationalization of the Fed
or of its functions. But if what the Fed does now is bad and inflationary,
allowing the Treasury to print and issue money at-will would be even worse,
and could possibly lead to a Weimar-like hyperinflation.
The
problems and advantages of the gold standard were discussed at the hearing.
The era of the classical gold standard was undoubtedly one of the greatest
eras in human history. For a period of several decades in the late 19th
century, the West made enormous advances. However, the gold standard was
still run by government. The temptation to suspend gold redemption reared its
head again with the outbreak of World War I. Once the tie to gold was severed
and fiscal restraint thrown to the wind, undoing the damage would have
required great fiscal austerity. Instead, the Western world proceeded to set
up a gold-exchange standard which lasted not even a decade before easy money
led to the Great Depression.
While
returning to the gold standard would certainly be far better than maintaining
the current fiat paper system, as long as the government retains the power to
go off gold we may end up repeating the same mistakes.
The only
viable solution is to get government out of the money business permanently.
The way to bring this about is through currency competition: allow parallel
currencies to circulate without receiving any special recognition or favor
from the government. Fiat paper monetary standards throughout history have
always collapsed due to their inflationary nature, and our current fiat paper
standard will be no different.
It is
imperative that the American people be educated on the dangers of the Fed and
the importance of restoring sound money. The laying of the groundwork must
begin today, so that the American people will be prepared for the day when
the mirage the Fed has created evaporates completely. The full hearing
footage is available on my website and I would encourage every American to
take a look.
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