US Fed’s Coming Centennial Anniversary of Failures and Inflationism

The US Federal Reserve will be observing its 100 years of existence in December 23, 2013. Unfortunately it has been 100 years of volatility, turbulence and boom bust cycles.

Sovereign Man’s Simon Black enumerates the failures of the FED

As we’re coming up on the 100th anniversary of the establishment of Federal Reserve, one thing has become abundantly clear– these guys are horrible at their jobs.

According to the popular lie, the Federal Reserve was supposed to have been established to smooth out the economic cycle, thus preventing booms, busts, recessions, and depressions.

It hasn’t really worked out that way.

In the 100 years prior to the establishment of the Federal Reserve, there were 18 distinct recessions or depressions:

1815, 1822, 1825, 1828, 1833, 1836, 1839, 1845, 1847, 1853, 1860, 1865, 1869, 1873, 1887, 1890, 1899, and 1902.

Since the establishment of the Federal Reserve, there have been 18 recessions or depressions:

1918, 1920, 1923, 1926, 1929, 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008.

So in other words, the economy experienced just as many recessions with the ‘expert’ management of the Federal Reserve as without it.

And this doesn’t even begin to capture all the absurd panics (the S&L scare), bailouts (Long-Term Capital Management), and ridiculous asset bubbles that they’ve created.

I’d like to add that since the introduction of the FED, the US dollar’s purchasing power has immensely shrunk.

Based on the US Department of Labor’s CPI Inflation calculator, as of this writing, $100 in 1913 is worth only $4.23 today! The US dollar has lost over 95% of its purchasing power since the Fed’s birth! What an accomplishment by the FED.

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Here is a chart of the US dollar courtesy of visual.ly

Even John Maynard Keynes knew of the insidious effects of monetary debasement on societies.  

From Chapter VI, Europe after the Treaty from “The Economic Consequences of the Peace” [1920] (source The Online Library of Liberty) [italics original; bold mine]

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. [very much the yield chasing phenomenon today--Benson]

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

The Fed certainly did get one thing right: they have been unwaveringly abiding by Lenin’s prescriptions towards the undoing of a capitalist society for 100 years. And expect more to come.