Video: David Stockman: Lunatics at the FED

Former US Representative and Director of the Office of Management and Budget David Alan Stockman bashes the US Federal Reserve in the video below (source LewRockwell.com)

"Ron Paul is the only one who is right about the Fed, and the Fed is the heart of the problem. They have destroyed the capital markets and the money markets; interest rates mean nothing; everything is trading off the Fed and Wall Street isn't even home – as it's now a bunch of computers trading word-clouds emitted by this central banker and that"

"The Fed (and the lunatics that run it) are telling the whole world untruths about the cost of money and the price of risk."

When markets become disconnected with economic reality as I pointed out the other day, these are signs that capital markets have become dysfunctional or capital markets have been "destroyed" from mainly from central banking policies.

The popularity of what Mr. Stockman calls as "sugar" or clamor for the FED to further intervene by monetary inflation in order to further ease credit conditions reminds me of this stirring quote from the great Professor Ludwig von Mises.(bold added)

It is vain to object that the public favors the policy of cheap money. The masses are misled by the assertions of the pseudo-experts that cheap money can make them prosperous at no expense whatever. They do not realize that investment can be expanded only to the extent that more capital is accumulated by savings. They are deceived by the fairy tales of monetary cranks from John Law down to Major C.H. Douglas. Yet, what counts in reality is not fairy tales, but people's conduct. If men are not prepared to save more by cutting down their current consumption, the means for a substantial expansion of investment are lacking. These means cannot be provided by printing banknotes or by loans on the bank books.

In discussing the situation as it developed under the expansionist pressure on trade created by years of cheap interest rates policy, one must be fully aware of the fact that the termination of this policy will make visible the havoc it has spread. The incorrigible inflationists will cry out against alleged deflation and will advertise again their patent medicine, inflation, rebaptizing it re-deflation. What generates the evils is the expansionist policy. Its termination only makes the evils visible. This termination must at any rate come sooner or later, and the later it comes, the more severe are the damages which the artificial boom has caused. As things are now, after a long period of artificially low interest rates, the question is not how to avoid the hardships of the process of recovery altogether, but how to reduce them to a minimum. If one does not terminate the expansionist policy in time by a return to balanced budgets, by abstaining from government borrowing from the commercial banks and by letting the market determine the height of interest rates, one chooses the German way of 1923.

Economic reality will inevitably and eventually prevail.