Deception at the Fed
For the past three decades, the Federal Reserve has been given a dual mandate: keeping prices stable and maximizing employment. This policy relies not only on the fatal conceit of believing in the wisdom of supposed experts, but also on numerical chicanery.
Rather than understanding inflation in the classical sense as a monetary phenomenon – an increase in the money supply – it has been redefined as an increase in the Consumer Price Index (CPI). The CPI is calculated based on a weighted basket of goods which is constantly fluctuating, allowing for manipulation of the index to keep inflation expectations low. Employment figures are much the same, relying on survey data, seasonal adjustments, and birth/death models, while the major focus remains on the unemployment rate. Of course, the unemployment rate can fall as discouraged workers drop out of the labor market altogether, leading to the phenomenon of a falling unemployment rate with no job growth.
In terms of keeping stable prices, the Fed has failed miserably. According to the government's own CPI calculators, it takes $2.65 today to purchase what cost one dollar in 1980. And since its creation in 1913, the Federal Reserve has presided over a 98% decline in the dollar's purchasing power. The average American family sees the price of milk, eggs, and meat increasing, while packaged household goods decrease in size rather than price.
Loose fiscal policy has failed to create jobs also. Consider that we had a $700 billion TARP program, nearly $1 trillion in stimulus spending, a government takeover of General Motors, and hundreds of billions of dollars of guarantees to Fannie Mae, Freddie Mac, HUD, FDIC, etc. On top of those programs the Federal Reserve has provided over $4 trillion worth of assistance over the past few years through its credit facilities, purchases of mortgage-backed securities, and now its second round of quantitative easing. Yet even after all these trillions of dollars of spending and bailouts, total nonfarm payroll employment is still seven million jobs lower than it was before this crisis began.
In this same period of time, the total U.S. population has increased by nine million people. We would expect that roughly four million of these people should have been employed, so we are really dealing with eleven million fewer employed people than would otherwise be expected.
It should not be surprising that monetary policy is ineffective at creating actual jobs. It is the effects of monetary policy itself that cause the boom and bust of the business cycle that leads to swings in the unemployment rate. By lowering interest rates through its loose monetary policy, the Fed spurs investment in long-term projects that would not be profitable at market-determined interest rates. Everything seems to go well for awhile until businesses realize that they cannot sell their newly-built houses, their inventories of iron ore, or their new cars. Until these resources are redirected, often with great economic pain for all involved, true economic recovery cannot begin.
Over $4 trillion in bailout facilities and outright debt monetization, combined with interest rates near zero for over two years, have not and will not contribute to increased employment. What is needed is liquidation of debt and malinvested resources. Pumping money into the same sectors that have just crashed merely prolongs the crisis. Until we learn the lesson that jobs are produced through real savings and investment and not through the creation of new money, we are doomed to repeat this boom and bust cycle.
Posted by Anadianant on 02/15/11 01:51 AM
I'm afraid I find it very difficult to take Ron Paul seriously. So many decades, all talk, no action.
I understand he is a darling of the Hard Money, Austrian economics crowd, but to me, he is a giant distraction. A congressman of such repute cannot walk into Fort Knox? Or bring down the house? That alone is such a big red light. And then the Tea Party, Rand Paul succession into politics.
Sorry Dr. P, to me you are just another establishment created counter-point. Big FAIL. To me, you represent Deception in Politics.
Click to view link
Posted by Pete 8 on 02/15/11 07:09 AM
Thanks Dr Paul for your sage perseverance toward rationality.
Sheesh it's really quiet here tonight, all the regulars must be at the lodge meetings?
Posted by Maritzanita on 02/15/11 07:30 AM
Nothing in politics happens by accident. Ron Paul is the most outspoken critic of the federal reserve bank. I have to wonder how he got to be in charge of the committee that oversees the federal reserve. The PTB could easily have arranged to block him from obtianing the position he now holds. To my mind, Ron Paul is a huge distraction. He always gives the libertarian movement the tantalysing hope that soon all will be put right by Ron Paul.
Posted by Bluebird on 02/15/11 07:55 AM
What can one man do without the backing of the people? Try to educate, which is what he is trying to doing here. But most want to keep jumping into the pit of no return.
Ron Paul, 2012!
Posted by Terry Haney on 02/15/11 07:57 AM
Interesting. It looks like the Elves are being attacked by Click to view link must be a slow day over on the Liberal blogs.
The posts above mine are are a good indicator that Ron Paul has someone worried.
Thanks for presenting his insights.
Posted by Puzzled on 02/15/11 09:20 AM
Dear Dr. Paul:
Is there any way to stop the trillions of dollars barry soetoro is going to give to Egypt?
We made Mubarack a wealthy man, we could bring everyone out of poverty with what we gave Mubarack.
If this Country is so broke, WHY are we giving so much of our (Income?) to other nations that can do for themselves?
This begs the question of Afghanistan, Britan didn't win there! What gives us the idea we can? Britan went Broke, we are now Broke?
Look at the trillions of dollars we are giving the world, without making them loans, What is our Gov't doing?????
On SS, Why do we give congress/judges, $1,600. per term/per month in SS retirement? The average person gets $900. To $1,200.00 ????
Yes, I think this should be means tested, but that translates to the average person getting 30% less and others 30% more.
If you want to help America, Vote for a 30% cut in Congress/judges pay!
Posted by Dr. Debrad on 02/15/11 10:24 AM
Dear Right Wingers,
Liberal bashing on any Conspiracy or Power Elite type website is such a waste of time. Liberals already have trouble taking Conservatives seriously. (Really? You think Santa Claus from Outer Space and his little son Jesus are going to step in and make everything okay? And that gay marriage is of the devil?)
So I vote the Barry Soeretoro comments, etc. stop. The two party system was created by the Power Elite to keep us focused on irrelevant disagreements. It was a long road for me from ultra-liberal to Libertarian, but fortunately I could go the back road -- through Anarchism.
I am a friend of a friend of Rand Paul. Do you really think he does not beleive in Evolution? That he took his little trip to the Creation Museum in Kentucky seriously? Good people have to get elected somehow. It is very unusual for anyone to get elected without financial backing from the Power Elite. Ron Paul has been consistent with his message if anyone would listen. So has Bernie Saunders for that matter, from the opposite side of the aisle, and both say some of the same things: We are bailing out the wrong people.
I also heartily recommend the brilliant but approachable Catherine Austin Fitts, the previous Assistant Secretary of Housing under Senior Bush. She has a great interview on Click to view link (also highly recommended), and she says basically, that Bernanke is doing a great job at what his actual mandate is -- getting as much money as possible out of North America. I think she is right, and I think that is not a partisan issue.
Posted by BILL WOLF on 02/15/11 11:11 AM
When do we stop the democrats from, buying the union vote, by giving increases, year over year, when the economy is in the dumps, when states are going bankrupt, if we let the fed bailout states like California, Illinois, New York, etc, we will continue to print money, which is leading us to the PIGS economies, with civil unrest. Stop the madness, thank you Click to view linkul
Posted by Lg on 02/15/11 11:22 AM
Dear Dr. Paul,
Thank you for being true and staying on message for so long. You are no longer preaching to only "slaves" in the desert. Moses was not lost for 40 years, he was waiting for the "slaves" to die off. Leading the free desert born generation into the promised land. Please continue to spread your message. The youth are listening. Blessings to you and yours.
Posted by Dennis Mihalka on 02/15/11 11:27 AM
One does not have to look far to understand that what Dr. Paul is suggesting has not been applied. In fact, what he has stated is the fact and has failed miserably. We have not had a free market since before being taken off gold as a standard. Government control and manipulation has and is killing our freedom and prosperity and long term opportunity for every last person.
If you hold 100 diamonds in your hand and all of a sudden, someone produces 1000 perfect diamonds, do your diamonds increase or decrease in value?
Posted by Bewer on 02/15/11 11:33 AM
Ron Paul is one of the few voting similar to what I would. Most of the rest of congress keep getting reelected; so I dont expect much change. Send more money to Egypt! Spend more fighting Paksistan. This is what we elect and those people appoint.
Posted by Raymond on 02/15/11 11:46 AM
The Federal Reserve System is not Federal (not a government agency). It is not a Bank and there are not now and never have been any reserves. The Federal Reserve System is a cartel of banks operating as if they were a central bank and operating without any money.
Everything about this "system" is based on credit and debt in which the only way to discharge (set off) a debt is with another debt instrument. The entire system is based on fraud and like any fraud everything produced thereof is invalid INCLUDING THE ENTIRE NATIONAL DEBT.
When it is said that the United States "owes" X trillions of dollars to this country or that what is really meant is that the United States has promised the future production of it's citizens to the foreign entity.
The way this debt is paid is by "inflating" the currency (Federal Reserve Notes) so that there are more of them and each one will "purchase" less and less. In other words inflation is a tax. The only solution is to abolish the Fed.
Posted by Bill on 02/15/11 11:58 AM
While I do not feel we can go back to simple free market barter and trade times. I do thank Ron for his continued battle to reform the Ponzi scheme of the elitist Fed. If the Treasury printed money we would still have inflation to deal with but not new public debt.
I doubt anyone would have an easy time turning down a deal where you "buy" bonds with a stroke of your computer key, and get to collect the principle and Interest on this purchase forever. Well in truth they probably know they will only collect the interest but this interest is approaching 20% of all government revenues. Ron is correct but he is one representative-hardly an elite power position. He should run for the senate.
Posted by Gary J. Mallast on 02/15/11 12:03 PM
Posted by Joe on 02/15/11 12:18 PM
The Fed was fraudulently created in 1917. By 1933 the country declared bankruptcy. We are being ruled by the banksters under bankruptcy. There is no way out but to repudiate the debt and go back to sound money. Just like Egypt as long as there is a Zionist Red Shield Central Bank we will never be free.
Posted by Ted on 02/15/11 12:52 PM
Seems few get the message. Quit thinking of 30 day fixes to the economy and unemployment. Dr Paul is a long term thinker. The cure may be painful in the short term but save the economy and the country in the long term.
Posted by Dietrick Luther on 02/15/11 02:03 PM
Imagine if google and the internet was a source for good, taken over so that whenever someone asks a question about "interest rates", "monetary policy", "Bernake"... the ONLY answer popping up was from Lew Rockwell's crew, with running commentary by DB. Where are my friends from Anonymous now!!??
Can anyone help me with that? Cryptome? Would a tall blonde female stranger walk into the room?
I'll buy you a scotch on the rocks! Where is WikiAustrian? Rushdoonyoogle?
Click to view link
Can you imagine hijacking the algorithms of Cisco Routers to direct all people seeking information on a news story or subject related to politics, economy and politics to a DB-Rockwell webserver (the size of Amazon or Google)? ?
Posted by Della Johnson on 02/15/11 02:05 PM
Just a short while ago, after reading your article "Deception at the Fed," I started to read the Post Feedback. I think there were four comments. The first caught me a little offguard because, to tell the truth, I am biased in favor of Dr. Paul and I guess the reason I went to the website noted was to see if there was anything I have missed about Dr. Paul that my bias might have ruled out. The other comments were laudatory.
To: anadianant Thank you for posting your website. Your website said absolutely nothing to confirm the statements you made about Dr. Paul. I probably spent far too much time trying to make sense out of your message. I learned the same language you did, but could make little sense of the message on your website except for a few new words that I can add to my vocabulary. You gave me nothing to change my bias.
Dr. Paul, I can't begin to tell you how much I appreciate your honesty, integrity and perseverance. For as many years as I can remember, I rarely voted on the winning side of an election. I think the reason has been that old question: "How do you know when a politician is lying? His lips are moving." What I've looked for was honesty and a sincere commitment to serious issues.
When you first exposed the Fed to me, I was incredulous. Looking further into how it came into being I was aghast and knowing more about it, I still am. That we as a nation have tolerated it for one moment absolutely mystifies and angers me. Until lately, you have been the lone voice "crying in the wilderness." Now you're the loudest voice. Thank you from the bottom of my heart. I know that if we are ever able to get out from under this insidious monster, it will be because of you.
I have to admit that I am less knowledgeable with regard to economics, but I am working toward greater understanding. I trust your information to the extent that I use your statements as my frame of reference. I have been reading books and articles on the von Mises website. Not all are about economics but then I haven't read them all yet.
I am also reading Tragedy and Hope. I don't know how many people know about this book, perhaps I'm the only one who hadn't heard of it. I only put the title here in hopes that one person who hasn't read it will do so, at least the Introduction. It really puts the Fed into perspective.
You have taken a lot of potshots from political wannabes mostly, the latest being at CPAC by that red-headed guy that owns a lot of buildings. I can't remember his name or what he said, but then, he's just a guy with money. I know the audience loved you, and so do I. Thanks.
Posted by Maureen Zika on 02/15/11 03:11 PM
After reading economics since early 2009 Dr. Ron Paul makes more sense than any other Economist or politician. I don't understand people who think Keynesian Economics work when clearly it is not.
Austrian economics is fully understood by Dr. Paul. Most of these so called Economists truly do not understand Keynesian Economics. This is why we are in this Economic hell situation today. Thank you Dr. Paul for not only understanding but to take action. Yes, End the Fed! Find out what they are hiding and manipulating. If you run for President in 2012 you have my vote.
Posted by Nightcrawler on 02/15/11 04:11 PM
If the "Donald" was right and Dr. Paul can not get elected to POTUS, perhaps some smart president can replace Ben with Dr. Paul. I'd pay honest money for a seat to that show.