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.


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.