|In The Belly of A Horse
09 July 2002
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If the Fed didn't existů
If there were no Fed, consumers might save more of their money, and the economy might be less prone to the unintended imbalances between consumption and savings. In fact, the economy may not need to depend on foreign savings at all.
If there were no Fed, bureaucracy and debt could not outgrow the contributions that are made by capitalism. Neither could ignorance and corruption.
If there were no Fed, our bank deposits couldn't be insured by the government. But maybe they wouldn't need to if the market quickly disciplined reckless banks. There certainly would be no petty cash fund for the bankers and government to dip into as the result of their own screw-ups.
If there were no Fed, over hedging might not be possible. But then, it may not even be necessary.
If there were no Fed, the value of our money would not necessitate its management, and the layperson wouldn't have to worry about debasement and excessive taxation.
If there were no Fed, deflation would be possible even in terms of money substitutes.
If there were no Fed, investors would have nobody to subsidize their stupidity, and thus wouldn't be so keen to offer themselves up as a sacrifice for the big wealth transfer. What I mean here is that the stock market isn't for everyone, but the Fed makes it seem so, for a while anyway.
If there were no Fed, the invisible hand wouldn't have arthritis and markets wouldn't be "inherently unstable."
If there were no Fed, Bush would really be the President, and Gore would have been too afraid to run.
If there were no Fed, other countries would not need a central bank of their own to finance the accumulation of dollar reserves so that they can trade and sustain the US dependent global economy (or inflation scheme).
If there were no Fed, the same nations might finally be persuaded to legislate private property rights as a means to achieve the same ends they only think they are today.
If there were no Fed, OPEC wouldn't need to exist to protect its monetary interests, and the world might never run out of oil.
If there were no Fed, we wouldn't have to save the stock market to keep the country from going to war, or from being fully employed.
If there were no Fed, the individual's word might be as good as gold, in business or in politics. Maybe even in law (joking here).
That's fifteen benefits the Fed interferes with and there are more, but time is limited.
I can think of no convincing justification for the existence of a central bank except for in its role as lender of last resort. But I can think of no compelling reason that would necessitate a lender of last resort, save where monetary policies or lending becomes profligate.
Sure, some believe markets are inherently unstable. We disagree, and propose that those claiming so have helped to justify the Fed. How does a lender of last resort ply its trade? Does it have an inexhaustible source of funds? It does, in our collective ignorance.
Nearly every time the Fed whisks its safety net onto the economy it leads to a new financial boom. Hmmm. I wonder what we should make of that?
I'll tell you what I think. Those condemning the market for its instability, completely disregarding the Fed's influence in this drama, provide the main support for the Fed's charter, and they may even benefit from the volatility or wealth transfer.
Think about that quote the next time there is a crisis worthy of the Fed's help, in so far as it is only too happy to help. I wonder at what point they will get the idea to initiate the crises? It's only logical after all. Did I say that out loud...
The Greenspan Horse
Some people may need to beat up on other people to feel better about themselves. If gold is the better money, a central bank's survival would depend on its ability to either demonstrate its superiority, or to beat up on gold. If it chooses to employ the latter, it is no longer simply an opponent of gold. It becomes an enemy of money, and thus by extension, to capitalism.
If a central bank refutes the principles of sound money should we be surprised it is in support of too much of it? Should we be surprised at the legitimacy of terms such as elastic money, fractional reserve lending, or that growth requires more money?
Money doesn't breed greed and corruption by itself. Too much money does. It also breeds malinvestment. It should be no surprise who is ultimately responsible for that. It is the same institution we all are most afraid to banish. It is the institution whose currency we are trained to need.
Mises spent the next page or two doing so - by summarizing the illegitimacy of this concept - and also devoted several hundred pages to it along with the many other banking theories of the day. The point is that many of today's popular generalist economic doctrines have already been scientifically rejected at least 75 years ago. It's just that most people are too lazy to know it. I hate that conclusion just as much as you may, but it's true.
Ignorance is not bliss. On the contrary, our leaders count on it.
Federal Reserve Chairman Greenspan is not ignorant. He was, or is a student of von Mises', and it is more than likely his mastery of the subject is what makes him such a worthy opponent to gold, capitalism, and money. Who better to take charge of the agents of inflation than one who knows why gold is consistently the better money?
A central bank is to capitalism what the Trojan horse was to the mythological city of Troy. It's not a safety net, but rather a tool for plunder. It's certainly not a gift, but then, neither was the big wooden horse.
It's Value Not Quantity
There is no end to the ways the money supply can be persuaded to grow. It is true that we can't really push on a string. But the string analogy doesn't apply in the new economy. The reason is there are many strings and some of them are designed to pull along the value of certain assets, and thus push (influence) the demand for new currency.
The "money" supply is an important gauge to the extent too much of it undermines the prevailing system of production, for it's the efficacy of that system which ultimately determines demand for the currency. The current state of the system of production is such that it has been corrupted by too much currency. And more of it isn't going to make it all better.
Productivity can't save a society or system corrupted by easy money any more than it could've helped the city of Troy defend itself against the quiet army hidden in the belly of the wooden horse.
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