Why Not Abolish the Fed?

Why Not Abolish the Fed? Jacob G. Hornberger
Lew Rockwell.com
Tuesday February 5, 2008
One of the positions of Republican presidential candidate Ron Paul that mainstream pundits find â??wackyâ?� is his call to abolish the Federal Reserve System. Never mind that two Nobel Prize-winning economists â?? both libertarians â?? called for the same thing. And never mind that the Fed is the entity directly responsible for the debasement of the dollar over the many decades since the Fed was established. Both Milton Friedman and Friedrich Hayek called for the abolition of the Fed during their careers. While Friedman spent much of his life advocating externally imposed constraints on the Fedâ??s power to expand the money supply, his first wish was to have the Fed abolished, as he pointed out in a 1995 Reason magazine interview. In his book Denationalisation of Money: An Analysis of the Theory and Practise of Concurrent Currencies, Hayek advocated a free-market monetary system of competing currencies.
Most Americans probably still believe that the Great Depression was caused by â??the failure of the free-enterprise system.â?� It is a false belief. The truth is that the worst economic disaster in American history was caused by the Federal Reserve. Give current Fed Chairman Ben Bernanke credit for publicly acknowledging that fact in a speech delivered in 2002 commemorating Friedmanâ??s 90th birthday.

Throughout the ages, the favorite political trick for public officials has been to dole out â??free benefitsâ?� to the citizenry and engage in expensive foreign military adventures without raising taxes. To accomplish this feat, they have simply resorted to the printing press to get the money to pay for the â??free benefitsâ?� and the military adventures. As more money was printed, its value would drop, which would be reflected in rising prices for the things that money buys. As prices rose, people would blame speculators, capitalists, price-gougers, and profiteers, never suspecting that their public officials were behind the scam.
Thatâ??s what the Fed has been doing for decades â?? accommodating ever-increasing government expenditures by printing the money to pay for them. Thatâ??s why the value of the dollar has been plummeting ever since the 1930s. Itâ??s also why U.S. coins are now made of cheap alloys rather than of gold and silver. As the value of precious metals rose in response to an ever-depreciating currency, the value of the precious metals in coins became greater than the face value of the coins, encouraging people to hoard the coins or even melt them down for the metal. Thatâ??s what Greshamâ??s Law in economics is all about â?? that bad money (i.e., depreciating money) inevitably drives good money out of circulation.
For decades, U.S. officials made it a felony offense for Americans to own gold. Why did they do that? To prevent Americans from protecting themselves from a constantly depreciating currency. Equally important, the price of gold has always been an easy way to gauge what politicians are doing to the money. They have never liked that.
What the Fed has done to our money over the decades should not surprise anyone. After all, the Federal Reserve is nothing more than a central-planning agency in the classic socialist mold. Just like the central-planning boards in the Soviet Union and communist China, the Fed is composed of a central board of bureaucratic appointees planning, in a top-down fashion, complex monetary matters affecting millions of economic participants under constantly changing conditions. Given the inherent defects of socialist central planning, why would anyone expect anything but bad and perverse results from monetary central planning?
As Friedman and Hayek and other free-market economists (most notably Ludwig von Mises) pointed out, the Federal Reserve is the prime destroyer of currency and, therefore, one of the greatest threats to the freedom and well-being of a citizenry. As the monetary crisis facing our country continues to worsen, itâ??s important that we keep in mind that there is only one long-term solution â?? the one advocated by people such as Republican presidential candidate Ron Paul and Nobel Laureates Milton Friedman and Friedrich Hayek: Abolish the Fed.

Its destined to collapse at some point. When you can continue to just print paper that is worthless with no assets to back it, its just a matter of time before it all falls apart. And one of the funniest things for the people that want to own gold as a real asset,you can't. You're ownly allowed in this country to own a small amount. People are making a killing off of selling gold certificates that are supposed to be backed by gold.lol

Federal Reserve Under Increased Scrutiny After Huge Interest Rate Cuts Alex Newman
JBS
Tuesday February 5, 2008
The debate surrounding central banks has been around in America since its founding, but it has remained largely ignored by average people for decades. After recent actions taken by the Federal Reserve, economists are asking more and more questions, the issue is gaining national exposure, and a bill in Congress aims to abolish the institution altogether.
Follow this link to the original source: "Federal Reserve to auction 60 bln dlrs in February"

Questions about the underlying structure of Americaâ??s monetary policy are becoming increasingly important on the national stage after what economists are calling â??wildâ?� rate cuts by the Fed.
Jim "Mad Money" Cramer, a financial guru with a television show on CNBC, called for an investigation of the Fed during an interview with Wall Street Confidential. He criticized the institution for allegedly causing every "boom and bust business-cycle," for the recent interest cuts, and more. He was also severely critical of the new chairman, Ben Bernanke.
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"The Federal Reserve created the stock bubble with low margin rates and it created the housing bubble with low mortgage rates, yet I never hear about anyone talking about investigating the Fed," he said on his show. "Itâ??s a creature of Congress, why donâ??t we do it?"
He featured Republican Presidential candidate, Rep. Ron Paul, who said the Federal Reserve is more secretive than the C.I.A., and that it should at least be audited by Congress, if not totally abolished.
Paul went on to discuss the problems associated with the idea of a central bank engaging in "central-planning."
"If you believe in free-enterprise and capitalism, you should have the market forces determining interest rates," he said. "Itâ??s the distortion of interest rates by manipulating the money supply that causes these bubbles to form." The current chairman of the House Banking Committee is taking an interest in these matters and is better than past leadership, Paul also noted.
Congressman Paulâ??s comments echo a common argument made by economists critical of the Fed; manipulations in interest rates and the supply of money by the Fed cause bad investments. They argue that interest rates should be determined by the market.
In fact, the idea of a strong central bank with control over credit can be found among Marxâ??s 10 Planks, along with a progressive tax on income and a state-run education system. In a society based truly on free-enterprise, interest rates would be set by the market.
The Fedâ??s recent cuts, three-quarters of a percentage point, lowered interest rates to 3.5 percent. Critics say this is simply going to cause more inflation, which is already out of control, leading to an even further depreciation dollar. This is likely to be exacerbated by other Fed actions as well, such as the planned injection of $60 billion into the economy through an auction this month. According to the AFP news service, the Fed plans to "conduct biweekly auctions for as long as necessary to provide short-term liquidity to banks."
The recent rate cuts came after economic planners at the Fed, already supposedly scared of a recession in the U.S., realized there was trouble in Asian and European markets. It turns out one of the central causes of these market problems was a rogue trader at a large French bank who made some terrible, enormous investments. He is now being prosecuted for fraud, but the point is that the Fed claims they didnâ??t have knowledge of this when they became alarmed and reduced rates. The Fed, even if we assume it is acting in the best interests of the American economy, will never be able to replace market forces in determining appropriate rates.
Another question now entering the debate is the Constitutionality of the Fed. Article I, Section 8 is clear when it gives Congress the authority to coin money and regulate the value thereof. The Constitution also states that no State shall make anything but gold or silver legal tender.
Congress created the Fed in 1913, the same year America was saddled with the income tax. The legislation that created it was written during secret meetings between the elite of the banking world on Jekyll Island. The museum that stands there today, now a Georgia State Park, names the conspirators in attendance.
Now, this privately held, virtually unregulated institution has the power to create money out of nothing, backed by the IRS and your wages, and charge interest on top of it. A bill in Congress, H.R. 2755, would change this by abolishing the Federal Reserve.