Last Thursday the Senate Banking Committee held hearings on Janet Yellen's
nomination as Federal Reserve Board Chairman. As expected, Ms. Yellen indicated
that she would continue the Fed's "quantitative easing" (QE) polices, despite
QE's failure to improve the economy. Coincidentally, two days before the Yellen
hearings, Andrew Huszar, an ex-Fed official, publicly apologized to the American
people for his role in QE. Mr. Huszar called QE "the greatest backdoor Wall
Street bailout of all time."
As recently as five years ago, it would have been unheard of for a Wall Street
insider and former Fed official to speak so bluntly about how the Fed acts
as a reverse Robin Hood. But a quick glance at the latest unemployment numbers
shows that QE is not benefiting the average American. It is increasingly obvious
that the Fed's post-2008 policies of bailouts, money printing, and bond buying
benefited the big banks and the politically-connected investment firms. QE
is such a blatant example of crony capitalism that it makes Solyndra look like
a shining example of a pure free market!
It would be a mistake to think that QE is the first time the Fed's policies
have benefited the well-to-do at the expense of the average American. The Fed's
polices have always benefited crony capitalists and big spending politicians
at the expense of the average American.
By manipulating the money supply and the interest rate, Federal Reserve polices
create inflation and thereby erode the value of the currency. Since the Federal
Reserve opened its doors one hundred years ago, the dollar has lost over 95
percent of its purchasing power -- that's right, today you need $23.70 to buy
what one dollar bought in 1913!
As pointed out by the economists of the Austrian School, the creation of new
money does not impact everyone equally. The well-connected benefit from inflation,
as they receive the newly-created money first, before general price increases
have spread through the economy. It is obvious, then, that middle- and working-class
Americans are hardest hit by the rising level of prices.
Congress also benefits from the devaluation of the currency, as it allows
them to increase welfare- and warfare-spending without directly taxing the
people. Instead, the increase is only felt via the hidden "inflation tax." I
have often said that the inflation tax is one of the worst taxes because it
is hidden and because it is regressive. Of course, there is a limit to how
long the Fed can facilitate big government spending without causing an economic
crisis.
Far from promoting a sound economy for all, the Federal Reserve is the main
cause of the boom-and-bust economy, as well as the leading facilitator of big
government and crony capitalism. Fortunately, in recent years more Americans
have become aware of how the Fed is impacting their lives. These Americans
have joined efforts to educate their fellow citizens on the dangers of the
Federal Reserve and have joined efforts to bring transparency to the Federal
Reserve by passing the Audit the Fed bill.
Auditing the Fed is an excellent first step toward restoring a monetary policy
that works for the benefit of the American people, not the special interests.
Another important step is to repeal legal tender laws that restrict the ability
of the people to use the currency of their choice. This would allow Americans
to protect themselves from the effects of the Fed's polices. Auditing and ending
the Fed, and allowing Americans to use the currency of their choice, must be
a priority for anyone serious about restoring peace, prosperity, and liberty.