June 13, 2024

THE FEDERAL RESERVE CONTINUES TO PAINT ITSELF INTO A CORNER

Chester McAteer

Judging the efficacy of an institution by its policies, decisions, and outcomes reveals that the Federal Reserve System has been a significant failure. Despite the adoption of a fiat monetary system leading to severe currency depreciation, the Fed has also failed to stabilize the economy, instead fostering numerous boom and bust cycles since its inception in 1913.

The long-term monetary policies promoted by the Fed, supported by the government and other nations, are inherently destructive. These policies are predicated on the illusion of value and the false notion of wealth through debt, creating a catastrophic situation. Relying on a system that perpetuates gradual monetary depreciation is profoundly unwise and short-sighted, posing a significant threat to the future well-being of society.

Such an inflationary fiat monetary system allows the government to fund an array of political projects without significantly raising taxes. This avoids the politically dangerous and unpopular act of overt taxation. However, inflation acts as a hidden tax, eroding the purchasing power of money and draining productive wealth from the economy.

It promotes government expansion and leads to poor decision-making and misguided policies. By enabling the government to avoid immediate fiscal discipline, it creates a cycle of increasing debt and economic instability, ultimately undermining long-term prosperity and stability.

The Federal Reserve's policies have led to a significant loss of productive wealth, which is perhaps the most damaging consequence of a fiat money system. This loss impedes progressive commerce in ways that are often not fully understood. The inability to accurately judge the time value of money under such a system is particularly harmful to businesses, especially those engaged in long-term capital investments. Without a reliable measure of future value, businesses struggle to determine the true cost of capital, leading to frequent malinvestments and poor decisions. This results in a fundamentally flawed and unstable economic environment.

The Fed's manipulation of interest rates compounds the problem, as businesses lack clear signals regarding time preferences. In a free-market system with sound money, interest rates would provide reliable indicators, allowing for more informed and effective decision-making in both monetary policy and business strategy. Instead, the current system is characterized by uncertainty and inefficiency.

Despite the Federal Reserve's monetary and credit policies, which theoretically should promote steady economic growth through the injection of money and credit into circulation, this has not been the case. The intended benefits of these policies are undermined by the distortions they introduce, leading to economic instability rather than sustainable growth. As a result, the economy suffers from periodic booms and busts, further eroding confidence in the system and hindering long-term economic progress.

The Federal Reserve's policies have contributed to creating a massive and ever-growing debt burden, which steadily drains the vitality from the country and its citizens. The only factor currently sustaining the system is the Fed's relentless operation of the "printing press" to inject more money into the economy. However, the debt is escalating at a rate that outpaces the Fed's ability to mitigate it through monetary expansion. The Fed's efforts to delay an inevitable economic reckoning only create a temporary respite, pushing the crisis further into the future.

Managing this growing problem is becoming increasingly difficult for the Fed, as the gap between escalating debt and the Fed's monetary interventions narrows. The public remains largely unaware of the severity of the situation due to the lag between the Fed's actions and their economic consequences. This time lag allows underlying issues to remain hidden until they manifest more acutely.

Eventually, the entire system reaches a breaking point where it becomes unmanageable. Stress fractures in the economy multiply and deepen, exceeding the capacity of the Fed's usual measures to contain them.

As we are witnessing, the decision-making process under such conditions becomes highly uncertain and reactive, resembling haphazard attempts to stave off disaster rather than implementing sound monetary and economic policies.

This precarious situation underscores the fundamental instability introduced by excessive reliance on debt and the perpetual printing of money, leading to an unavoidable economic crisis that will be structurally beyond the ability of either the FED or the government to adequately manage.

Posted by: Timothy Birdnow at 11:34 AM | Comments (1) | Add Comment
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Posted by: Mike Rooney at June 14, 2024 02:49 AM (x1si9)

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