This week, President Obama and Vice President Biden held a hastily
arranged secret meeting with Federal Reserve Chairman Janet Yellen. According
to the one paragraph statement released by the White House following the
meeting, Yellen, Obama, and Biden simply "exchanged notes" about
the economy and the progress of financial reform. Because the meeting was
held behind closed doors, the American people have no way of knowing what
else the three might have discussed.
Yellen's secret meeting at the White House followed an emergency secret
Federal Reserve Board meeting. The Fed then held another secret meeting to
discuss bank reform. These secret meetings come on the heels of the Federal
Reserve Bank of Atlanta's estimate that first quarter GDP growth was .01
percent, dangerously close to the official definition of recession.
Thus the real reason for all these secret meetings could be a panic that
the Fed's eight year explosion of money creation has not just failed to
revive the economy, but is about to cause another major market meltdown.
Establishment politicians and economists find the Fed's failures puzzling.
According to the Keynesian paradigm that still dominates the thinking of most
policymakers, the Fed's money creation should have produced such robust
growth that today the Fed would be raising interest rates to prevent the
economy from "overheating."
The Fed's response to its failures is to find new ways to pump money into
the economy. Hence the Fed is actually considering implementing
"negative interest rates." Negative interest rates are a hidden tax
on savings. Negative interest rates may create the short-term illusion of
growth, but, by discouraging savings, they will cause tremendous long-term
economic damage.
Even as Yellen admits that the Fed "has not taken negative interest
rates off the table," she and other Fed officials are still promising to
raise rates this year. The Federal Reserve needs to promise future rate
increases in order to stop nervous investors from fleeing US markets and
challenging the dollar's reserve currency status.
The Fed can only keep the wolves at bay with promises of future rate
increases for so long before its polices cause a major dollar crisis.
However, raising rates could also cause major economic problems. Higher
interest rates will hurt the millions of Americans struggling with student
loan, credit card, and other forms of debt. Already over 40 percent of
Americans who owe student loan debt are defaulting on their payments. If
Federal Reserve policies increase the burden of student loan debt, the number
of defaults will dramatically increase leading to a bursting of the student
loan bubble.
By increasing the federal government's cost of borrowing, an interest rate
increase will also make it harder for the federal government to manage its
debt. Increased costs of debt financing will place increased burden on the
American people and could be the last straw that finally pushes the federal
government into a Greek-style financial crisis.
The no-win situation the Fed finds itself in is a sign that we are
reaching the inevitable collapse of the fiat currency system. Unless
immediate steps are taken to manage the transition, this collapse could usher
in an economic catastrophe dwarfing the Great Depression. Therefore, those of
us who know the truth must redouble our efforts to spread the ideas of
liberty.
If we are successful we may be able to force Congress to properly manage
the transition by cutting spending in all areas and auditing, then ending,
the Federal Reserve. We may also be able to ensure the current crisis ends
not just the Fed but the entire welfare-warfare state.
