The Federal Reserve Has Failed Us

I happen to be one of those people that thinks the U.S. economy (and much of the world economy for that matter) is currently running in an unsustainable fashion with expectations of infinite growth (growth every single year) on a finite planet financed by debt.

I prefer to invest for the long term and as such I try and look at what will happen over longer periods of time. I can’t tell you if the price of gold or oil or any commodity will go up the next day. I can tell you what direction it will probably go over the next decade due to the fundamental economics. Much of the daily fluctuations in the stock market are not linked to fundamentals… but to fear, greed, wall street hype and the media machine. Sometimes the key to understanding where we might be headed is in looking at the basic building blocks of our situation.

Federal Reserve

The Federal Reserve is neither Federal, nor a reserve. It is a private bank that was established in 1913. I won’t bore you with the details. All you need to know is that it is owned privately - by people who could afford and had the power to start a central bank in 1913. It has never been audited. It controls the money supply. And the only Senator in the United States that seems to be asking hard questions of the Federal Reserve is Ron Paul. Perhaps he is the only Senator that understands economics? Perhaps he is the only one willing to stick his neck out to discuss the things that need discussion. I wish more Senators would question the Federal Reserve and whether we should abolish it.

The Federal Reserve controls the money supply by deciding to increase or decrease interest rates and whether to create more money. The whole point is to create a stable and steady economy. The U.S. dollar is NOT backed by gold. It is nothing more than a promissory note - a debt instrument. I believe fiat currencies are inherently flawed and doomed to eventual failure. Fiat currencies are easy to manipulate and that is significant problem. Leave my money alone! Don’t touch it, don’t manipulate it, don’t devalue it. Let it be.

In March 2006 the Federal Reserve stopped publishing the M3 index - reportedly because it costs a lot to collect this information and it wasn’t worth it. The M3 index is a report that tells us how many dollars are in existence. So lets get this right. The Federal Reserve (a privately owned company) has never been audited (ordinary citizens and corporations get audited all the time - The Fed hasn’t been audited since their creation in 1913) and now they NO LONGER PUBLISH HOW MUCH MONEY IS IN CIRCULATION. The same company that CONTROLS THE MONEY SUPPLY isn’t held accountable? How can you determine the value of a currency without that information? How do we truly know what the Federal Reserve has been doing? It could be conducting pure fraud and acting like a free ATM for its owners!? We don’t know. That should scare you. Sometimes I truly wonder, do the people have control over government anymore? Is voting once every four years really government by and for the people?

The Federal Reserve has been saving U.S. banks that invested in sub-prime mortgages. What about the pension funds? What about the average investor? Will they be bailed out? Nope. Just the banks. Funny how that works. The Fed bailing out their friends when they do dumb things that hurt the average American. Is it odd that the banks only own a small portion of the sub-prime mortgages and yet they are the only ones to get bail-outs…?

“The Federal Reserve is totally out of it. They’re destroying the currency
and driving up inflation, which will result in higher interest rates and a
worse economy. We now know the Fed doesn’t understand markets or
economics, but is just trying to bail out its friends on Wall Street at the
expense of 300 million Americans, nay, of the whole world.”
- Investment Guru Jim Rogers


Then there is the bigger question. Do you believe in the free markets and capitalism? Do you think the government should stay out of our business and let it be (laissez-faire)? I guess they think the free market won’t work without interference? Why else would we need the Federal Reserve? The whole point is to manipulate the money system in order to have a more stable economy. Tell me… is the economy stable? Was the economy stable in 1929 and the “Dirty 30’s”? The Federal Reserve has never done a good job.

Want another example of how the Fed has failed us? In the 1950’s a man could support his entire family with ONE average job. He could afford a nice home with the white picket fence and his wife didn’t have to work. Now women are forced to work outside the home just so the bills can be paid and her husband (and quite often her too) is working 80+ hours a week just to keep up with the workload. Inflation has slowly hidden the effects over several generations.

I tend to agree with the Austrian school of economics and believe government interference is counter-productive and has caused many problems. It has done nothing but push problems forward so that they can be dealt with another day. Pushing the problems forward hasn’t solved them… but merely delayed and intensified them and the consequences are scary. Instead of dealing with the problem of debt several decades ago, we are now in a much worse situation. We are headed towards economic disaster.

To stop a recession from happening after the internet bubble burst, the interest rates were lowered. That spurred a real estate bubble. Home values soared (people had cheap access to money) and people refinanced to take some of that money out and spend it. Others went into massive debt to build their dream homes. Lenders lowered their lending requirements to the point where they would lend money to people with no job, no income and no assets. Adjustable rate mortgages lured people in to dangerous mortgage situations. Interest only loans popped up. What happens when millions of people spend $500,000+ each on homes during the same two or three year period and also spend lots of money on furnishing their homes with appliances, decorations, furniture and electronics? A large economic boom! Now that so many people have spent 30+ years of their money all at once (thanks to the low interest rates decided by the Federal Reserve), the economy will slowdown even worse than what would have happened when the internet bubble burst… It’s inevitable. All those people will NOT spend another $500,000+ on another home this year… they already bought their home during the last three years… The Federal Reserve has interfered time and time again and it has always backfired later on.

Now What?

Now the Boomer’s will begin to retire. The most productive segment of society is going to become the biggest drain. The economy is in shambles, the stock market returns are lousy and homes are worth less than consumers paid for them (if they happened to be a recent buyer/builder as the Fed would have hoped they’d be).

The U.S. Dollar is falling… it is being done in such a way (hidden with no M3) that it actually looks like they are purposefully lowering the value of the dollar to cause wide-spread problems. Let’s face it, they are lowering the interest rates to help spur the economy but that is an action they know will lower the value of the dollar. Also by hoping more consumers take on MORE debt to stop the recession the economy will inevitably become even more shaky. Sorry, everyone is already maxed out! You can’t keep borrowing your way out of a recession. The dramatic swings in the U.S. Dollar are just the beginning. Soon, no one will know what the U.S. dollar is worth and foreign countries will sell their reserves. Then, the Fed or the government will probably create a solution: Ditch the dollar and create the Amero and a North American Union. This is scary stuff when you truly realize what it does to your constitutional rights and the future of the United States.

So far all the Federal Reserve has done is do a good job of getting EVERYONE into debt to others. Being indebted to others feels like a form of wage slavery. How much debt do you have?