It Takes a Federal Reserve to Ruin an Economy


Without the Federal Reserve, the American economy would not be in dire straits.  It is primarily the fault of the Federal Reserve that many homes and office buildings sit vacant.  It is largely the irresponsibility of the Fed that resulted in the United States government owning General Motors.  Here's why.

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When the federal Reserve prints money, the enlarged money supply causes interest rates to go down.  The expanded pool of funds available for banks to loan, together with artificially low interest rates, gives a false signal to producers that consumers are ready to buy more thing--such as homes, cars, and office buildings. Acting on this false signal, construction workers and automakers begin feverishly to build homes, cars, and office buildings to satisfy the artificial demand.

Under the hypnosis of false economic signals, consumers may be emotionally ready to buy these things, but they are neither ready nor able to afford them.  Since the Federal Reserve's creation of money causes all interest rates to be low, savings interest rates are low, too.  This problem causes consumers

Under the hypnosis of false economic signals, consumers may be emotionally ready to buy these things, but they are neither ready nor able to afford them.

to be fooled into thinking that saving their money is not a worthwhile endeavor. Instead, they borrow more because interest rates are low.  Because borrowing is easy when the money supply is increasing and interest rates are falling, consumers consider themselves able to buy bigger new homes and rent space in bigger new office buildings than they can really afford.  The inability to afford the payments on the homes and offices that they purchased and rented only becomes apparent later on, however.  Cosnumers made the wrong economic choices because they trusted the signals that the economy was giving.  The economy was giving false signals because the Federal Reserve printed too much money.

In such an economic environment, eventually, because their money comes mostly from borrowing and not from productivity, consumers find that they don't have the ability to pay off their loans.  They lose their houses.  They lose their businesses.  They even lose their cars.  Ultimately, many homes and office buildings sit vacant.  At the same time, many once burgeoning construction companies go out of business.  Failing automakers get taken over by the government.

Is that a way to run an economy?  No, but it certainly is a good way to ruin one!

Excess production and consumption inevitably occur when the Federal Reserve behaves irresponsibly.  Without the irresponsibility of the Federal Reserve, far fewer consumers would expect to be able to afford things that they really can't. Without the irresponsibility of the Federal Reserve, far fewer producers would create things that people can't afford.

Without the federal reserve's attempt to centrally plan our economy (much like the Soviet politburo did before the USSR imploded) the American economy would be much better off.

Comments

  1. I suppose that you also advocate returning to the gold standard? It will work so long as we rewind the word back to 1880, along with the world's population.

    Since when does the FR "centrally plan our economy?" You've been drinking too much poisoned Kool-Aid.

    To paraphrase a scripture, first learn, then teach.

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  2. always amusing to read comments by an anonymous poster critical of the article without providing anything of value to support your negative side.

    About as useful as reading the walls in a bathroom stall. Perhaps something to support the critical comments???

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  3. I agree, we have been operating in a "false" economy for a long time. And we are just starting to see the "fruits" of our planted seeds. I just hope that we aren't too late to correct it.

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  4. When did the Department of the Treasury turn over the task of printing money to the Federal Reserve?

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  5. JBT: Sorry for the shorthand about who "prints" what. Here's a longhand explanation of it. http://www.investopedia.com/articles/economics/08/treasury-fed-reserve.asp I liked this statement in the linked article for its comedic value

    "The Federal Reserve System was established in 1913. It serves as the central bank of the U.S., with a mandate to "keep our money valuable and our financial system healthy.""

    Woops! Not workin' too well!!! ;-)

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  6. Wrong facts are neither shorthand or longhand, they are wrong facts. Your blog blaming the Federal Reserve was based on a factual error in the first sentence of your argument. So much for credibility . . .

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  7. Are you talking about this "first sentence": "Without the Federal Reserve, the American economy would not be in dire straits."??

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  8. The first paragraph is your description of the problem.

    The first sentence of your "argument" which follows the words "here's why" is this:

    When the federal Reserve prints money, the enlarged money supply causes interest rates to go down.

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  9. aaaaand I can expect from your previous condescending attitude that you don't care that you know what I really meant.

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  10. Why would I be interested in what you said (or meant) on this topic since you apparently don't know what you are talking about? Do some research next time before putting your opinions on the web and your comments might be better received.

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  11. THAT is a very good question. Why are you interested? You keep coming back in sophomoric attempts to belittle me rather than carry on a constructively critical conversation.

    I am flattered that, deep down, you think that I have something important to say. ;-)

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  12. Your arrogance is only surpassed by your lack of knowlege of the subjects you pontificate about. I keep coming back to give you a taste of how you come across to those of us who do not share your myopic view of the world.

    It is impossible to have a constructively critical conversation with someone who believes their misinformed, narrow minded, nonsense is the truth that somehow the best minds in the world have somehow missed. Arrogant right wing ideology unfettered by facts and lacking academic references is the norm on this blog. Please don't flatter yourself in thinking that your ideas are important beyond the confines of your own inflated ego.

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  13. Wow, JBT. You just can't leave it alone, can you? How can you possibly know if it's impossible when you have never TRIED to have a constructive conversation with me on this blog.

    I dare you--point out something that you disagree with and tell me why.

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