The Federal Reserve Bank will probably have
a new chairman, Jerome Powell. The best thing he could do is close the place
down.
Authorized by the Constitution to regulate
the value of money, Congress has delegated the matter to the Federal Reserve
Bank, requiring it to maintain price stability and maximum sustainable
employment. No one can do both at the same time. Since high unemployment is
more obvious than price instability, the Fed strives for low unemployment and
makes price stability secondary.
How stable have those prices been? Let’s
see: An item costing one dollar in 1913, when the Federal Reserve was created,
would cost $24.92 today. For this sorry record you can credit the Fed’s poor monetary
management and no gold backing.
In the 1930s, the Fed reduced the money
supply by about a third. This would have been okay if done slowly, years
earlier. But the rapid decline after the Depression had started brought big price
declines and widespread bankruptcy.
The Fed is now overwrought about
deflation. A rapid decline of the money supply can bring severe problems, as
above. But deflation caused by the increased supply of goods, as occurring now
in prosperous Switzerland, does not.
Stable prices are obtained by a steady
increase in the amount of money, backed by gold. For this, the Federal Reserve’s
enormous bureaucracy is unnecessary.
The Fed’s wild fluctuations of the money
supply and manipulations of foreign currencies have increased economic
volatility and unemployment and suppressed economic growth, all of which have
been especially hard on low-income Americans.
Hardly anyone can consistently predict the
economy, but especially not government officials. The Fed’s attempts have
failed.
The Fed has tried to regulate the economy
by controlling interest rates. It hasn’t worked. Price controls never work. For
the last decade, interest rates have been kept unnaturally low. This has not
only deprived savers of reasonable returns, it has also widened the gap between
rich and poor. With the interest returns low, banks are nevertheless willing to
lend to the rich, because of the low risk. But banks are less willing to lend
to small businesses and common folks because the low interest returns do not offset
the higher risks.
The Federal Reserve Bank should be
eliminated.
