The Federal Reserve, America's central bank that has the monopoly power to print money and manage our currency, has been a scourge on American economic prosperity, failing to prevent the boom-bust cycle (also known as the business cycle) while making boom-bust cycles worst. As John P. Cochran has stated,
It [the Federal Reserve] was set up to protect the value of the dollar and to avoid boom and bust cycles. Since inception of the Fed, the dollar has, in real terms, declined over 87 percent, now having a purchasing power compared to a 1913 dollar of less than 13 cents. Just since the mid-1990s overly easy monetary policy has caused or enabled two significant boom-bust periods with accompanying bubbles in first dot.com stocks and then residential and commercial real estate.
Not only has the Federal Reserve's policy of monetary manipulation lead to chronic economic cycles of boom and busts, it has distorted credit markets, distorted interests rates, created piles of debt upon the citizenry, created higher demand for consumer goods, leading to high prices for things like food and gasoline, and has helped facilitate a policy of perpetual war and an expansive warfare state.
Despite the overwhelming evidence against central planning via the monetary authorities, chairmen of the Federal Reserve are seen as all-knowing economic wizards who can somehow have all the knowledge and ability to steer the economy in a direction that produces a stable money supply and full employment. For example, former Federal Reserve chairmen Alan Greenspan, who was in charge of the Fed from 1987 to 2006, was seen as the monetary maestro who knew how to steer the economy in the right direction. But since the infamous Housing Bubble of 2007-2008 busted, leading to a recession, Alan Greenspan has denied any responsibility for the economic collapse. Alan Greenspan's policy of excessively and artificially low interests rates combined with a government policy of forcing mortgage lenders to make bad loans to un-creditworthy borrowers led to incredible malinvestments into the housing market, creating an economic bubble that eventually went bust. Unfortunately, Greenspan's successor has made the economy even worse off than before.
Ben Bernanke, who became chairman of the Fed shortly after Alan Greenspan, will no longer be the chairman of the Fed by the end of 2013 due to the fact that his term is about to expire by that time. Many have seen and continue to see Ben Bernanke as "the man who saved the economy". What this means to people who support monetary central planning and people who benefit greatly from this form of wealth redistribution is that Bernanke was willing to make bold interventions into the economy to steer it away from the recession when capitalism was supposedly incapable of fixing itself. But Bernanke's policies have been identical from his predecessor and have failed to move the economy towards recovery: Interests rates were and are continued to be artificially lower than what is necessary for the economy to recover, which is keeping interests rates from tracking the proper levels that the market economy sets for interest rates, which is preventing resources from being directed to their highest value uses. Bernanke's continued policy of money printing and Quantitative Easing have continued to prop up unsound and failing firms while shielding such firms from having to pay the consequences and facing necessary and justified liquidation and resource reallocation. These policies have also contributed to constant regime uncertainty, in which entrepreneurs and investors are reluctant to act on their investments due to their inability to predict how future government actions will affect their private property rights.
Even though Ben Bernanke will be leaving the Fed later this year, we should not expect his successor to be any better. Right now the battle for who will be in charge of the Fed is between Janet Yellen, the current vice chairmen of the Fed and Lawrence Summers, an economist. But such battles are somewhat irrelevant. People foolishly focus on who will occupy the office and not the office itself. That is the fundamental problem with the Fed. Instead of focusing on who will lead the Fed, people should focus on the institution itself, for it is not the leadership of the Fed that has caused our economic problems, it is the Fed itself and the fatal conceit that such an institution can effectively plan the economy that has led America and most of the world towards economic chaos and eventual political chaos. That is why instead of arguing for this chairman or that chairman, we should be debating whether or not the Federal Reserve should be doing the things that it does. The best solution to the issue of monetary manipulation by the central bank that will lead the economy to recovery is to end the Fed.
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