The Lifeblood of the Empire: The Federal Reserve System
Thomas E. Woods, Jr.
These remarks were delivered at the Rally for the Republic, Target Center, Minneapolis, on September 2.
About fifteen years ago a conservative columnist wrote that Americans are faced with a choice between the Stupid Party and the Evil Party. And that once in a while the two parties get together and do something that’s both stupid and evil, and that’s called bipartisanship.
If anything, that view was too optimistic. On so many issues that matter, we may as well have a one-party system.
Some people on the Left are finally discovering to their chagrin that the so-called change Barack Obama would make to American foreign policy is just cosmetic. What did they expect? His foreign-policy panel, a who’s-who of the establishment, includes Madeleine Albright, the former Secretary of State who said "the price has been worth it" when asked on 60 Minutes what she thought of the fact that the Bush/Clinton sanctions on Iraq had led to half a million dead children.
So that’s the "change" candidate. Well, how very refreshing.
On taxes, the Democrat favors a top income tax rate of 39.5 percent, and the Republican favors a top rate of 35 percent. Well, ain’t democracy grand! We get to debate a whole four and a half percentage points.
Forget about spending. The Democrat spends his time devising new ways to throw away money we don’t have. Who knows what additional billions the Republican nominee’s foreign-policy bellicosity will saddle us with. But he pledges to balance the budget without a tax increase by 2013, while also strengthening the dollar and closing the $70 trillion entitlement shortfall. And we’re expected to believe this.
Been there, done that.
And by the way, if I may be forgiven for stating the obvious, you are not a fiscal conservative – or any other kind of conservative, for that matter – if you think it’s a-okay to stay in Iraq for one hundred years.
The subject I’ve been asked to address here, though, is yet another one that finds the two major candidates – let’s call them McBama – in agreement: namely, money and the Federal Reserve System.
Since the Fed was established in 1913 the dollar has lost 95 percent of its value. The Fed has given us more financial bubbles than we can count. When it inflates the money supply it lowers the value of the dollars in Americans’ pockets and hurts society’s most vulnerable. It redistributes wealth from the middle class and the poor to the politically well connected, by means of what economists call distribution or Cantillon effects.
What’s more, F.A. Hayek won the Nobel Prize in economics for showing how central banks like the Fed create the boom-bust business cycle in our economy. When the central bank manipulates interest rates, it causes massive discoordination. The interest rate is supposed to coordinate production across time, but it can do so only when it reflects an aggregate of voluntary choices, not the whim of the Fed chairman. Entrepreneurs are misled into making investments that make no sense in light of current resource availability. The Fed’s intervention starts the economy on an artificial boom that ends in an inevitable bust.
More and more financial analysts are coming to accept Hayek’s view, known as the Austrian theory of the business cycle, because it corresponds so closely to what’s happening all around us. In the 1920s, when so-called mainstream economists were foolishly assuring us that permanent prosperity had arrived, economists of what’s known as the Austrian School of economic thought, to which Ron Paul also belongs, stood alone in predicting the Great Depression.
Yet in spite of all this, we’ve had no serious discussion of the Federal Reserve System for nearly 100 years. It has been fantastically successful in depoliticizing itself. No politician even mentions it. And although he is too genuinely humble to acknowledge it, one man is responsible for finally blasting open this forbidden question: Ron Paul.
Look at how members of Congress treat the Fed chairman when he appears before them. He gets asked only the most inane, sycophantic questions. Members of the Banking Committee, decked out in their "I Heart Bernanke" T-shirts, wave incense before him.
Ron Paul, on the other hand, looks him in the eye and says, "You are stealing from the poor!"
The economic and historical arguments against sound money (that is, money that government can’t just print up at will) are surprisingly weak – really just a string of fallacies. For now I refer you all to the education page at http://rs6.net/tn.jsp?e=001hmky1_7K6yTCsxiLyVsq1nUHraNFY2LH5vKX_n5SdAXmDPhqUUHaUUS_IRBIwd7nN606Sn8ownBz7fEBKrNMLSCQK95_g8m-f_CbFijAxAUig-WtIOTSNBqWwsPictU- for plenty of resources in defense of sound money.
But Joseph Schumpeter, one of the great economists of the twentieth century, said that even if you accepted all the bogus economic arguments against gold, it still made perfect sense to favor it. Why? Because it is the only system compatible with freedom.
If "fiscal responsibility" is your issue, you’ll never get anywhere as long as the government can create out of thin air all the money it wants. If the federal government is an addict, then the Federal Reserve System is its enabler.
Or suppose you’re concerned about war and what Ron Paul calls our government’s "bull-in-a-china-shop foreign policy." (By the way, that’s a concern shared by the genuine Left – people like Kirkpatrick Sale and Gore Vidal – and the genuine Right, by which I mean traditional conservatives like Russell Kirk and Robert Taft, not today’s neoconservative death cult.) Well, you, too, should care about the Fed, since the central bank is the lifeblood of the empire. If you want to stop the war machine, you’ll have to go after the money machine.
How did Lyndon Johnson get away with his war spending in Vietnam? By a deliberate policy of concealing the cost through inflation – a cost the American people bore only later, in the stagflation of the 1970s. Just the cost overruns on two Pentagon projects added up to more than the combined GDPs of North and South Vietnam. By silently looting the American population, the government was able to get away with much more spending than would otherwise have been possible.
Then there’s the disastrous war in Iraq, the propaganda for which was fed to us by America’s Pravda, the New York Times. How has that war been funded? By borrowing from foreigners, and creating new money out of thin air.
As for our current economic mess, McBama agree with the president, who summed up his own business cycle theory in these words: "Wall Street got drunk." Their solution? For starters, hundreds of billions of dollars in bailouts to the alleged drunkards. Bailouts and scapegoating – anything other than pointing the finger where it belongs – are all McBama can think to do. To hear them speak, you’d never know the Fed’s mad money creation spree and its resulting economic distortions had even occurred.
And no, the free market doesn’t cause housing bubbles and mortgage crises. The federal government has been pushing unsound loans on banks for years, both through legislation and by a Federal Reserve policy of flooding the economy with cheap credit. This new money went overwhelmingly into the housing market, the result being the housing bubble that is now bursting. Fannie Mae and Freddie Mac are Government Supported Enterprises (GSEs) that get special tax and regulatory breaks, and that everyone knows will be bailed out if it should come to that. So there’s nothing to stop them from buying up risky mortgages from banks. And banks in turn are more likely to make risky loans in the first place if they know Fannie and Freddie will be happy to buy them up.
This crazy system is a layer cake of moral hazard, not the free market. But as usual, the free market is being blamed for the stupidity and recklessness of the blockheads who rule us.
Every four years we’re subjected to a pair of empty suits whose only real argument is over exactly how and through what channels they plan to squander Americans’ wealth. It’s enough to make the non-comatose segment of the population despair. What can we do?
For starters, you can do what Ron Paul does, which is to start your day by reading LewRockwell.com. You can go to amconmag.com and read and subscribe to The American Conservative magazine.
But above all, today we have a special suggestion. If you’re tired of having to choose between two wings of the same bird of prey, then help us change America: go to http://rs6.net/tn.jsp?e=001hmky1_7K6yTCsxiLyVsq1nUHraNFY2LH5vKX_n5SdAXmDPhqUUHaUUS_IRBIwd7nN606Sn8ownBz7fEBKrNMLSCQK95_g8m-f_CbFijAxAUig-WtIOTSNBqWwsPictU- and join Ron Paul’s Campaign for Liberty!
H.L. Mencken put it this way: "The most dangerous man, to any government, is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it."
Publishers Weekly says Dr. Paul "gives new life to old debates." But you know what? Without him, we wouldn’t be having these debates in the first place.
Ron Paul reminds us that our future is not cast in stone, and that if we as a people so choose, we do not have to live in the kind of America the two major parties have in store for us.
Thanks to all of you for the sacrifices you’ve made on behalf of this great American cause – and above all, thank you, Ron Paul.
Thomas E. Woods, Jr.
These remarks were delivered at the Rally for the Republic, Target Center, Minneapolis, on September 2.
About fifteen years ago a conservative columnist wrote that Americans are faced with a choice between the Stupid Party and the Evil Party. And that once in a while the two parties get together and do something that’s both stupid and evil, and that’s called bipartisanship.
If anything, that view was too optimistic. On so many issues that matter, we may as well have a one-party system.
Some people on the Left are finally discovering to their chagrin that the so-called change Barack Obama would make to American foreign policy is just cosmetic. What did they expect? His foreign-policy panel, a who’s-who of the establishment, includes Madeleine Albright, the former Secretary of State who said "the price has been worth it" when asked on 60 Minutes what she thought of the fact that the Bush/Clinton sanctions on Iraq had led to half a million dead children.
So that’s the "change" candidate. Well, how very refreshing.
On taxes, the Democrat favors a top income tax rate of 39.5 percent, and the Republican favors a top rate of 35 percent. Well, ain’t democracy grand! We get to debate a whole four and a half percentage points.
Forget about spending. The Democrat spends his time devising new ways to throw away money we don’t have. Who knows what additional billions the Republican nominee’s foreign-policy bellicosity will saddle us with. But he pledges to balance the budget without a tax increase by 2013, while also strengthening the dollar and closing the $70 trillion entitlement shortfall. And we’re expected to believe this.
Been there, done that.
And by the way, if I may be forgiven for stating the obvious, you are not a fiscal conservative – or any other kind of conservative, for that matter – if you think it’s a-okay to stay in Iraq for one hundred years.
The subject I’ve been asked to address here, though, is yet another one that finds the two major candidates – let’s call them McBama – in agreement: namely, money and the Federal Reserve System.
Since the Fed was established in 1913 the dollar has lost 95 percent of its value. The Fed has given us more financial bubbles than we can count. When it inflates the money supply it lowers the value of the dollars in Americans’ pockets and hurts society’s most vulnerable. It redistributes wealth from the middle class and the poor to the politically well connected, by means of what economists call distribution or Cantillon effects.
What’s more, F.A. Hayek won the Nobel Prize in economics for showing how central banks like the Fed create the boom-bust business cycle in our economy. When the central bank manipulates interest rates, it causes massive discoordination. The interest rate is supposed to coordinate production across time, but it can do so only when it reflects an aggregate of voluntary choices, not the whim of the Fed chairman. Entrepreneurs are misled into making investments that make no sense in light of current resource availability. The Fed’s intervention starts the economy on an artificial boom that ends in an inevitable bust.
More and more financial analysts are coming to accept Hayek’s view, known as the Austrian theory of the business cycle, because it corresponds so closely to what’s happening all around us. In the 1920s, when so-called mainstream economists were foolishly assuring us that permanent prosperity had arrived, economists of what’s known as the Austrian School of economic thought, to which Ron Paul also belongs, stood alone in predicting the Great Depression.
Yet in spite of all this, we’ve had no serious discussion of the Federal Reserve System for nearly 100 years. It has been fantastically successful in depoliticizing itself. No politician even mentions it. And although he is too genuinely humble to acknowledge it, one man is responsible for finally blasting open this forbidden question: Ron Paul.
Look at how members of Congress treat the Fed chairman when he appears before them. He gets asked only the most inane, sycophantic questions. Members of the Banking Committee, decked out in their "I Heart Bernanke" T-shirts, wave incense before him.
Ron Paul, on the other hand, looks him in the eye and says, "You are stealing from the poor!"
The economic and historical arguments against sound money (that is, money that government can’t just print up at will) are surprisingly weak – really just a string of fallacies. For now I refer you all to the education page at http://rs6.net/tn.jsp?e=001hmky1_7K6yTCsxiLyVsq1nUHraNFY2LH5vKX_n5SdAXmDPhqUUHaUUS_IRBIwd7nN606Sn8ownBz7fEBKrNMLSCQK95_g8m-f_CbFijAxAUig-WtIOTSNBqWwsPictU- for plenty of resources in defense of sound money.
But Joseph Schumpeter, one of the great economists of the twentieth century, said that even if you accepted all the bogus economic arguments against gold, it still made perfect sense to favor it. Why? Because it is the only system compatible with freedom.
If "fiscal responsibility" is your issue, you’ll never get anywhere as long as the government can create out of thin air all the money it wants. If the federal government is an addict, then the Federal Reserve System is its enabler.
Or suppose you’re concerned about war and what Ron Paul calls our government’s "bull-in-a-china-shop foreign policy." (By the way, that’s a concern shared by the genuine Left – people like Kirkpatrick Sale and Gore Vidal – and the genuine Right, by which I mean traditional conservatives like Russell Kirk and Robert Taft, not today’s neoconservative death cult.) Well, you, too, should care about the Fed, since the central bank is the lifeblood of the empire. If you want to stop the war machine, you’ll have to go after the money machine.
How did Lyndon Johnson get away with his war spending in Vietnam? By a deliberate policy of concealing the cost through inflation – a cost the American people bore only later, in the stagflation of the 1970s. Just the cost overruns on two Pentagon projects added up to more than the combined GDPs of North and South Vietnam. By silently looting the American population, the government was able to get away with much more spending than would otherwise have been possible.
Then there’s the disastrous war in Iraq, the propaganda for which was fed to us by America’s Pravda, the New York Times. How has that war been funded? By borrowing from foreigners, and creating new money out of thin air.
As for our current economic mess, McBama agree with the president, who summed up his own business cycle theory in these words: "Wall Street got drunk." Their solution? For starters, hundreds of billions of dollars in bailouts to the alleged drunkards. Bailouts and scapegoating – anything other than pointing the finger where it belongs – are all McBama can think to do. To hear them speak, you’d never know the Fed’s mad money creation spree and its resulting economic distortions had even occurred.
And no, the free market doesn’t cause housing bubbles and mortgage crises. The federal government has been pushing unsound loans on banks for years, both through legislation and by a Federal Reserve policy of flooding the economy with cheap credit. This new money went overwhelmingly into the housing market, the result being the housing bubble that is now bursting. Fannie Mae and Freddie Mac are Government Supported Enterprises (GSEs) that get special tax and regulatory breaks, and that everyone knows will be bailed out if it should come to that. So there’s nothing to stop them from buying up risky mortgages from banks. And banks in turn are more likely to make risky loans in the first place if they know Fannie and Freddie will be happy to buy them up.
This crazy system is a layer cake of moral hazard, not the free market. But as usual, the free market is being blamed for the stupidity and recklessness of the blockheads who rule us.
Every four years we’re subjected to a pair of empty suits whose only real argument is over exactly how and through what channels they plan to squander Americans’ wealth. It’s enough to make the non-comatose segment of the population despair. What can we do?
For starters, you can do what Ron Paul does, which is to start your day by reading LewRockwell.com. You can go to amconmag.com and read and subscribe to The American Conservative magazine.
But above all, today we have a special suggestion. If you’re tired of having to choose between two wings of the same bird of prey, then help us change America: go to http://rs6.net/tn.jsp?e=001hmky1_7K6yTCsxiLyVsq1nUHraNFY2LH5vKX_n5SdAXmDPhqUUHaUUS_IRBIwd7nN606Sn8ownBz7fEBKrNMLSCQK95_g8m-f_CbFijAxAUig-WtIOTSNBqWwsPictU- and join Ron Paul’s Campaign for Liberty!
H.L. Mencken put it this way: "The most dangerous man, to any government, is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it."
Publishers Weekly says Dr. Paul "gives new life to old debates." But you know what? Without him, we wouldn’t be having these debates in the first place.
Ron Paul reminds us that our future is not cast in stone, and that if we as a people so choose, we do not have to live in the kind of America the two major parties have in store for us.
Thanks to all of you for the sacrifices you’ve made on behalf of this great American cause – and above all, thank you, Ron Paul.
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