In her recent address at the Jackson Hole monetary policy conference,
Federal Reserve Chair Janet Yellen suggested that the Federal Reserve would
raise interest rates by the end of the year. Markets reacted favorably to
Yellen's suggested rate increase. This is surprising, as, except for one
small increase last year, the Federal Reserve has not followed through on the
numerous suggestions of rate increases that Yellen and other Fed officials
have made over the past several years.
Much more significant than Yellen's latest suggestion of a rate increase
was her call for the Fed to think outside the box in developing responses to
the next financial crisis. One of the outside the box ideas suggested by
Yellen is increasing the Fed's ability to intervene in markets by purchasing
assets of private companies. Yellen also mentioned that the Fed could modify
its inflation target.
Increasing the Federal Reserve's ability to purchase private assets will
negatively impact economic growth and consumers' well-being. This is because
the Fed will use this power to keep failing companies alive, thus preventing
the companies' assets from being used to produce a good or service more highly
valued by consumers.
Investors may seek out companies whose assets have been purchased by the
Federal Reserve, since it is likely that Congress and federal regulators
would treat these companies as "too big to fail." Federal Reserve
ownership of private companies could also strengthen the movement to force
businesses to base their decisions on political, rather than economic,
considerations.
Yellen's suggestion of modifying the Fed's inflation target means that the
Fed would increase the inflation tax just when Americans are trying to cope
with a major recession or even a depression. The inflation tax is the most
insidious of all taxes because it is both hidden and regressive.
The failure of the Federal Reserve's eight-year spree of money creation
via quantitative easing and historically low interest rates to reflate the
bubble economy suggests that the fiat currency system may soon be coming to
an end. Yellen's outside the box proposals will only hasten that collapse.
The collapse of the fiat system will not only cause a major economic
crisis, but also the collapse of the welfare-warfare state. Yet, Congress not
only refuses to consider meaningful spending cuts, it will not even pass
legislation to audit the Fed.
Passing Audit the Fed would allow the American people to know the full
truth about the Federal Reserve's conduct of monetary policy, including the
complete details of the Fed's plans to respond to the next economic crash. An
audit will also likely uncover some very interesting details regarding the
Federal Reserve's dealings with foreign central banks.
The large number of Americans embracing authoritarianism — whether of the
left or right wing variety — is a sign of mass discontent with the current
system. There is a great danger that, as the economic situation worsens,
there will be an increase in violence and growing restrictions on liberty.
However, public discontent also presents a great opportunity for those who
understand free-market economics to show our fellow citizens that our
problems are not caused by immigrants, imports, or the one percent, but by
the Federal Reserve.
Politicians will never restore sound money or limited government unless
forced to do so by either an economic crisis or a shift in public option. It
is up to us who know the truth to make sure the welfare-warfare state and the
system of fiat money ends because the people have demanded it, not because a
crisis left Congress with no other choice.
