Monday, October 26, 2009

End the Fed!!!

How did we get into this mess some call the Greater Depression? There are many theories being thrown around with reckless regard of truth. People blame policy, free-market, capitalism and “Wall Street greed”. There isn’t one exact cause of this depression that we can honestly say: “If we didn’t do this we would be perfectly OK right now”. If your answer to the problem is simple then it’s probably wrong. Monetary and fiscal economics is an easy “solution” to an unstoppable cycle. If monetarists were environment scientists they would try to get rid of winter so there could be organic growth year round. Recessions and even depressions are inevitable in the same since winter is inevitable; no one likes winter nor recessions but its apart of life so we have to deal with it. We generally know why winter occurs but do we know why recessions occur? If you look at this on the surface it’s because there is inadequate aggregate demand in the economy and our current policy favors the use of expansionary macroeconomic policy. This answer is too simple. You aren’t taking anything else into consideration, like why demand has dropped. Policy makers are just seeing there is a slowed demand for loans so the lower interest rates to stimulate demand. In theory stimulation isn’t real (not created on its own) and people know that the only reason our economy is “improving” now is because it is stimulated through artificial demand. If you knew this were the case it would make you even more cautious about the recovery because what inefficient gain caused by reckless monetary expansion we know we will pay for it later in higher taxes and higher inflation or stagflation.

Everything is caused by human emotion (fear, lust, anger, greed, courage, acceptance etc.). You cannot be a human being without emotions. The complexity of human behavior and emotions makes mathematical modeling of the evolving market virtually impossible but we try to do this anyway. What we need to do is create a valid economic system derived logically from basic principles of human action (praxeology). The spontaneous organizing power of the price system is what we need to rely on (see below what exactly I mean by spontaneous order and price systems).

“Spontaneous order is the spontaneous emergence of order out of seeming chaos; the emergence of various kinds of social order from a combination of self-interested individuals who are not intentionally trying to create order. The evolution of life on Earth, language, Wikipedia, and a free market economy have all been proposed as examples of systems which evolved through spontaneous order. Atheists and naturalists often point to the inherent "watch-like" precision of uncultivated ecosystems and to the universe itself as ultimate examples of this phenomenon.”
“In economics, a price system is any economic system that effects its distribution of goods and services with prices and employing any form of money or debt tokens. Except for possible remote and primitive communities, all modern societies use price systems to allocate resources. However, price systems are not used for all resource allocation decisions today.”

This would be a true free-market and thus truly democratic. When I mean free market I don’t mean lack of regulation, I mean lack of government manipulation. I am a proponent of act such as the Glass-Stegal Act, Anti-Trust, and certain government agencies (FDA, EPA, SEC, etc.).

One government quasi agency that has to go is the Federal Reserve Bank. While it could be slowing down this depression they are the ones who caused it and in the long run it is making the situation worse. Here is the purpose of the Fed from their website. (

The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Today, the Federal Reserve's duties fall into four general areas:
• conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
• supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

After reading that do I really need to defend my views? Or should the Fed be defending its policy and fiscal views along with why they should even exist let alone be in control of our entire financial system. Since the Fed was delegated the United States’ fiscal responsibility we have had the Great Depression, interest rates ranging from 0%-20%, the financial collapse we are currently in, housing market bubble, energy bubble, gold bubble of the 70’s, NASDAQ bubble, unstable and high unemployment, longer and more violent business cycles, etc.
The Fed isn’t stupid though, they are actually quite clever. They obviously have asserted the importance of centralized planning but anyone with sound monetary beliefs, like I’ve mentioned above, has concluded they’re wrong. The Fed should admit they were wrong for going against our founding fathers or let the general population listen to sound economic theory and vote them out of their job. Unfortunately there is a problem with both of those options; “He who controls the money controls everything” and the Fed would not control everything. Perhaps there is a third option that might seem familiar. They could claim that the very nature of what they speak of cannot be made comprehensible to mere men. The monetary system cannot be explained by a narrow ration approach of science. Seeking economic truth requires intuitive insight that only members of the Fed could understand. The Fed dresses this prejudice in such a disguise it will mike their reputation for wisdom look grand, so grand that the common folk will forget how wholly unsupported they are by evidence. Only softball questions are asked to the men donning a simple dress of mystery. Truth seekers like myself will never fall for such shenanigans even when normally clear thinkers will be intimidated or bewildered by their glorious aura. The Fed can cry mystery all they want but it won’t stop them from being wrong. Mystery is a completely undiscriminating license for belief. It rules out only what is logical and well supported by evidence. For those who have faith in the Fed to help save us hear this: declarations of faith are self-defeating. Someone will claim belief status only for opinions he cannot defend. No one ever declares their shirt size a matter of faith nor do they declare the atomic weight of gold a matter of faith. The moment someone declares an opinion such as, “I have faith in our government to pull us out of this mess, they know more than you.” you know what to think of their opinion. Philosopher Jamie Whyte refers this logical crime as prejudice in fancy dress.

“The end of democracy and the defeat of the American Revolution will occur when government falls into the hands of lending institutions and moneyed incorporations."
-Thomas Jefferson
“Government big enough to supply everything you need is big enough to take everything you have ... The course of history shows that as a government grows, liberty decreases.”
-Thomas Jefferson

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