Posted by: jackslife | April 7, 2009

First We Must Kill the Fed

According to Pat Buchanan in this American Conservative article, the Fed is responsible for the major economic ills of the last century or so.  I don’t doubt that this is true, but I share the questions of some of the commenters who seem to be unsure of what could be set up in its place.  If we could reasonably do away with the Fed I would probably not be opposed, but I’m hardly enough of an economic expert to know whether this is really possible or not.

Here’s a clip from the article –

The “forgotten depression” of 1920-21 was caused by a huge increase in the money supply for President Wilson’s war. When the Fed started to tighten at war’s end, production fell 20 percent from mid-1920 to mid-1921, far more than today.

Why did we not read about that depression?

Because the much-maligned Warren Harding refused to intervene. He let businesses and banks fail and prices fall. Hence, the fever quickly broke, and we were off into “the Roaring Twenties.”

But, the Fed reverted, expanding the money supply by 55 percent, an average of 7.3 percent a year, not through an expansion of the currency, but through loans to businesses.

Thus, when the Fed tightened in the overheated economy, the Crash came, as the stock market bubble the Fed had created burst.

And then Buchanan goes on to make a frightening comparison between the policies of Hoover during that depression, and the policies of Obama now –

Herbert Hoover, contrary to the myth that he was a small-government conservative, renounced laissez-faire, raised taxes, launched public works projects, extended emergency loans to failing businesses and lent money to the states for relief programs.

Hoover did what Obama is doing.

Indeed, in 1932, FDR lacerated Hoover for having presided over the “greatest spending administration in peacetime in all of history.” His running mate, John Nance Garner, accused Hoover of “leading the country down the path to socialism.” And “Cactus Jack” was right.

Interesting reading, but I leave it to my betters to determine whether it is really realistic to shut down the Fed.

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