While the Fed has recently
released an unprecedented amount of information on its activities, there is
still much that remains unknown. Predictably, every push towards transparency
has been fought tooth and nail. It took disclosure requirements enacted
within the Dodd-Frank Act to get the Fed to provide data on its emergency
lending facilities. It took lawsuits filed by Bloomberg and Fox News to
provide data on discount window lending during the worst parts of the
financial crisis. And it will take further concerted action on the part of
Congress, the media, and the public to keep up pressure on the Fed to become
and remain transparent.
Transparency is not a panacea,
however, as a fully transparent organization is still capable of engaging in
all sorts of mischief. Ironically, one of the Fed's more egregious recent
actions, adopting an explicit inflation target, was hailed by many as another
wonderful example of transparency. Yet if you think about what this 2%
inflation target actually is, you realize that it is an explicit policy to
devalue the dollar and reduce its purchasing power. And it adds up quickly
over time. Two percent annual price inflation means that prices rise 22%
within a decade, and nearly 50% within two decades.
It is worse than that,
however. This explicit 2% target also fails to take into account that
whatever measure is used to determine price inflation, be it CPI, core CPI,
PCE, etc., will always be chosen with an eye towards underreporting the true
rate of inflation and price rises. Pressure will be exerted on those
calculating the price indices, so as not to alarm the public when prices
begin to accelerate.
Of course, government
officials claim that price increases do not affect the average American
because they can always substitute hamburger for steak, or have cereal
instead of bacon to protect their family budget as prices rise. But the
American people don't overlook the fact that their quality of life has
suffered because of the Federal Reserve and price inflation. What will they
substitute when hamburger and cereal go sky high?
The Federal Reserve continues
to keep interest rates low in the hopes of boosting lending and consumption.
But keeping interest rates at zero discourages saving. Why stick money in a
savings account earning 0.05% if it is guaranteed to lose at least 2% every
year? The Federal Reserve created the largest debt bubble the world has ever
known with these sorts of policies. The extended zero interest rate policy
only eviscerates thrift and savings--the true building blocks of prosperity.
Capital will continue to be depleted, infrastructure will fall into
disrepair, and the United States will be a mere shadow of its former self.
It is well past time to end
the failed monetary policy that encourages this mistaken preference for cheap
money now, rather than real wealth in the long run. Transparency and a full
audit of the Federal Reserve is a start and something we must continue to
pursue. And, if those in power don't have the stomach to bring the Fed out
into full daylight, the American people deserve at least the right to conduct
their economic transactions in the medium of exchange of their choosing.