Have you ever gazed at the Federal Reserve’s imposing marble edifice in Washington and wondered, “What’s really going on behind those stern, stone walls?”
Let’s take a closer look, shall we?
Our Grand Illusion: The Federal Reserve
Most of us were taught that the Federal Reserve, our central bank, came into being to supply cash to banks during financial panics. A safety net, if you will, to prevent a systemic collapse. But this altruistic narrative starts to unravel when you dig a bit deeper into the murky depths of finance.
Reality is far from the idealistic image we were painted. The Federal Reserve was birthed not as a protector of the masses, but rather a savior for the banking goliaths of New York when their own mistakes threatened to bring them down.
Over time, the Fed has gone beyond its primary task of bailing out the big banks. It has become an active accomplice in the concentration of banking power. Yes, the Fed has been instrumental in precipitating banking crises, only to turn around and pump in funds that allow the larger banks to absorb their ailing regional counterparts.
A Banking Apocalypse Looms
A case in point, the Federal Reserve’s recent policy of hiking interest rates after a long stretch of negative ones has put our entire banking system on the edge of insolvency. Rather than saving the banks from collapsing, the Fed has allowed them to fail and be absorbed, proving that our education on the subject was deeply flawed.
Since its inception in 1913, the Federal Reserve has had a tight grip on the American economy, with a dismal track record to show for it. As a result of the Fed’s policies, the value of today’s dollar is but a fraction of its 1912 counterpart.
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The Root Cause of Economic Disasters
A well-documented example of the Fed’s disastrous role is its culpability in causing the Great Depression of the 1930s. As per renowned economists Milton Friedman and Anna Swartz, the Federal Reserve’s policies led to a contraction of the money supply, plunging the nation into the depths of the Great Depression.
Sadly, many economists misinterpreted John Maynard Keynes’ work and used it to further their fiscal aspirations. They argued that the Great Depression resulted from insufficient demand, ignoring the role of the Fed in causing the monetary contraction. This selective interpretation paved the way for one-dimensional macroeconomics where demand reigns supreme and supply is relegated to a passive role.
A Unilateral Approach: Demand vs. Supply
Pre-Keynesian economists like Alfred Marshall argued that price was determined by both supply and demand. However, with the rise of Keynesian economics, demand became the central pillar. This single-track thinking has wreaked havoc on our economy.
Today, the Federal Reserve combats inflation by reducing employment and output, primarily due to its demand-driven model. By curbing employment and output, the Fed is actually stifling supply, leading to price hikes – a concept they seem unable to grasp.
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The Current Inflation Quandary
The current inflation scenario is largely a product of supply-side constraints brought about by the Covid lockdown and international sanctions. The Fed’s high interest rate policy is exacerbating the situation by impeding the restoration of damaged supply chains.
In essence, the Federal Reserve’s high interest rates are steering us towards bank insolvency, resulting in more concentration in the hands of the Big Banks. Their actions are disrupting the lives of ordinary Americans, making them unemployed, preventing them from buying and selling homes, and driving up prices by increasing the cost of borrowing.
In the grand chess game of our economy, the Federal Reserve is the cunning player that maneuvers us, the unsuspecting pawns, into checkmate. Isn’t it time we started questioning their moves?
