In response to pressure from
Wall Street, the White House and central banks in Europe, the Federal Reserve
last week drastically cut interest rates for currency swaps to benefit
troubled European banks. This will flood world markets with more dollars and
will soon mean rising prices for every American at the grocery store. This
extra liquidity will temporarily ease the cash crunch for irresponsible bankers,
but in the long run it will make the situation much worse for consumers all
over the world. Equities markets registered big gains at the news, but only
for a day. Make no mistake - this is not capitalism, and this is not how a
free market operates. In a free market, bankruptcies happen, even to large
banks. We must remember, free markets are the true and best regulators of
financial mismanagement.
By contrast, under our current
form of special interest corporatism certain businesses are granted too-big-to-fail
status and are never allowed to go bankrupt. They keep profits generated
during the good times generated by the Fed's monetary inflation, yet their
losses are socialized through inflationary bailouts. This means you and your
family eventually pay for the Fed's decisions because every dollar you earn
is worth less. Few people make the connection that they have enriched bankers
in Europe through doubling and tripling prices on milk, eggs, gasoline, and
clothing, but that is exactly what is happening. The increased pace and size
of these types of desperate financial maneuvers means price inflation will
hit sooner and far too fast for wages to keep up. This is how the middle
class gets wiped out, as has happened so many times in the past when fiat
money fails.
The Fed's latest actions in
cooperating with foreign central banks to undertake liquidity swaps of
dollars for foreign currencies is just one more reason why Congress needs
enhanced power to oversee and audit the Fed. Under current law Congress cannot
examine these types of arrangements. Those who would argue that auditing the
Fed or these agreements with central banks harms the Fed's independence
should reevaluate the Fed's supposed independence when the Fed bails out
Europe so soon after President Obama promised US assistance in resolving the
Euro crisis.
Rather than calming markets,
these arrangements should indicate just how frightened governments around the
world are about the European financial crisis. Central banks are grasping at
straws, hoping that flooding the world with money created out of thin air
will somehow resolve a crisis caused by uncontrolled government spending and
irresponsible debt issuance. But those governments and central banks never
grasp that it is their own monetary policies that allowed European banks to
become so wantonly overleveraged in the first place. If those banks need
liquidity, they should generate it the old fashioned way: by attracting
depositors. If they cannot do so, they should be allowed to fail. Congress should
not permit this type of open-ended commitment on the part of the Fed, a
commitment which could easily cost American taxpayers trillions of dollars.
These dollar swaps are purely inflationary and will harm Americans as much as
any form of quantitative easing.
Americans deserve sound money
that cannot be manipulated and created out of thin air by central planners
who deceitfully promise prosperity. Fiat money caused this European crisis
and the financial crisis before it. More fiat money is not the cure. The
global fiat currency system has proven itself a failure. We need real
monetary reform. We need sound money.