The three Federal Reserve presidents of the Federal Reserve Banks of
Boston, Chicago and San Francisco want the Federal Open Market Committee (FOMC)
to start a new round of security purchases by the Federal Reserve. Eric S. Rosengren in an interview with CNBC called for
"a quantitative easing program and one
of sufficient magnitude that it has an impact."
He said it should have no stated limit:
"...But what I would argue for, actually, is to have it open
ended."
He said that the FED should buy more mortgage securities:
"...so I would focus on the mortgage-backed securities."
His is a program of unlimited inflation. His is a program of overpricing
long-term securities. His is a program of a bloated central bank. His
is a program that inflates the housing sector and starves other
sectors.
The results of Rosengren’s
recommendations are bubble prices in asset markets, low returns
to savers, increased uncertainty, low investment in capital
goods, and stagnant economic activity. The result is economic activity
too heavily focused on housing and not enough on technical and industrial
growth. The result is a movement away from investment in securities and into
assets that hold their value against the inroads of inflation. The result is
a slower recovery. The result is to hinder price changes and movements
of people to new lines of work. His is a program that thwarts a healthy,
natural and broad-based economic recovery from the recent real estate and
financial intermediary fiasco.
John C. Williams has nearly the same position as Rosengren,
as shown in a recent interview summarized
in the San Francisco Chronicle. Charles L. Evans of the Chicago Fed
also wants the FED to start buying more securities again,
until consumer prices start rising by 3 percent a year and unemployment falls
to 7 percent. These are numbers. Manipulating the economic activities
of 300 million Americans to achieve numbers is like trying to get into
heaven via sorcery.
These admirers of inflation hold to the wrong economic model.
The FED never should have bought its current portfolio of mortgage securities
in the first place. It should sell these securities now. For the FED to start
a new round of security purchases is a terrible, terrible idea.
These three men are Keynesians and/or new Keynesians. The difference
between an old and a new Keynesian is their models. This is a
technical difference, not a matter of substance. The latter use models that
explicitly incorporate such features as maximizing behavior, sticky prices,
expectations, and new methods of estimation. What’s far more important
than these technical bells and whistles is that Keynesians of all stripes
share common assumptions and views. All of the following bullet points that
they believe in should be rejected:
- Free
financial and credit markets are inherently defective and prone to fall
apart (called "instability" or "volatility" or some
other fancy language like "limits to private market financial
intermediation")
- Nevertheless,
banks and the financial system are all we have and should be saved by
wise regulation, oversight, government guarantees, and central bank
bailouts (called "credit easing")
- Economic shocks
either emanate from markets or out of the blue but not as a rule from
the U.S. government or, perish the thought, the Federal Reserve
- Centralized
economic controls (called "policy" as in "fiscal
policy" and "monetary policy") can rectify the errors of
markets and bring full employment with price stability
- Analysis
should be focused on the short term and long term effects ignored
- Always
assume that governments and central bankers are uniquely qualified to
man the centralized economic controls and right the sinking economic
ship
- Never
assume that governments and central bankers have done anything to sink
the economic ship
- Pay lip
service to the inability to measure welfare, but always act as if
governments, central bankers and their economists know what’s best
for everyone
- Do not
question the powers of government and central banks, except to find ways
to augment them
- Rely
heavily on oversimplified mathematical models of the economy both for
understanding an economy and then controlling it
- Act as if
economists can find economic constants
- Treat
diverse economic activities of diverse and heterogeneous people as if
they were governed by a system of equations subject to statistical
estimation and control
- Believe
that manipulations of estimated parameters in models give results that
are what happen in reality, while paying lip service to model
limitations
- Pay lip
service to "microfoundations", but
continue to think in terms of broad aggregates
- As much as
possible, ignore land as a factor, ignore heterogeneous capital goods,
ignore intermediate business production, and instead emphasize
"consumer spending"
- Portray
yourselves as modern and cutting edge, throwing off the outmoded
theories of the past
- Ignore
Austrian economics, classical economics, and land economics, or if they
cannot be ignored treat them as the old-fashioned musings of mistaken
kooks and gold bugs
- Ignore gold or disparage
gold
- Ignore
anyone who has qualitative insights about the economy or who
doesn’t possess a doctorate or who doesn’t gin up a
mathematical model or who has not been anointed as a member of the club
- Ignore
history, or else misinterpret it to suit your case
There is no reason even to list these lunatic beliefs and behaviors
except that the lunatics are running the asylum. Take the opposite of each
bullet point to get nearer to truth. Bear in mind that economics can
state truths and some of these can be stated mathematically, but yet
economics is not an exact science in the sense of routinely coming up with
algebraic constants or numbers that explain the economic activities of many
millions of people. People are not like molecules in a gas whose activities
can be explained by Boyle’s Law. There are not economic constants like
the gravitational constant.or Planck’s constant.
Most economists pretend to the exactness of physics by
ignoring and oversimplifying reality to the point of misunderstanding
economic behavior.
Let’s get some context on the trio’s proposal that the FED
start a new round of mortgage bond purchases by looking at the history of the
FED with respect to mortgage-related securities (MRS). The FED on November
25, 2008 announced that it would buy $600 billion of such securities:
"The Federal Reserve announced on Tuesday that it will initiate a
program to purchase the direct obligations of housing-related
government-sponsored enterprises (GSEs) – Fannie Mae, Freddie Mac, and
the Federal Home Loan Banks – and mortgage-backed securities (MBS)
backed by Fannie Mae, Freddie Mac, and Ginnie Mae.
Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened
appreciably of late. This action is being taken to reduce the cost and
increase the availability of credit for the purchase of houses, which in turn
should support housing markets and foster improved conditions in financial
markets more generally.
"Purchases of up to $100 billion in GSE direct obligations under
the program will be conducted with the Federal Reserve's primary dealers
through a series of competitive auctions and will begin next week. Purchases
of up to $500 billion in MBS will be conducted by asset managers selected via
a competitive process with a goal of beginning these purchases before
year-end."
This was a huge innovation. The FED, which began in 1913, had never
ever bought any MRS before. The amount it would buy was immense compared to
its usual credit. On November 21, 2007, prior to any of its several
credit-extending measures, its total credit was $868.136 billion. This step
alone meant a 69 percent jump in its balance sheet. This was unheard of.
If it’s so unusual, why did the FED do this? The FOMC tells us
in that quote that it was "to reduce the cost and increase the
availability of credit for the purchase of houses." It was for the
housing market. Why was that called for? Was the cost of mortgage credit too
high? NOT AT ALL. The government had had its hands on the housing
market since the 1930s. The government had seen to it that housing got
overbuilt. It had made the credit flow extremely easily. Americans had
just been through an orgy of home buying on very easy terms. The FED had its
hands on credit markets since 1913. It had helped make credit easy for
decades. Here are the undeniable facts. The 30-year conventional mortgage
rate was 7.3 percent in early 1971. Before that, people were used to 5-6
percent. The 70s had so much inflation (due to the government and the central
bank) that the mortgage rate went up to a peak of 18.45 percent in October of
1981. Then it fell, and it fell for decades. In early 2008, it was back under six percent. When the FED made its first
announcement bemoaning the cost of mortgage credit in November of 2008, the
rate was 6.09 percent.
The FOMC’s housing justification was misleading. The
bolstering of financial markets was one of their real reasons, because in the
aftermath of some major failures of financial companies in September of 2008,
the stock market had dropped severely. This "bolstering" is,
however, sorcery. The FED cannot make stock prices rise in real
terms. The FED’s ability to manufacture high-powered money
(electronic digits) can cause prices to rise, but it cannot produce more
goods. The real value of a stock depends on its real cash flows, and they
depend on real profits based on the hiring of real factors of production and
sales of real goods. Real values do not depend on cash flows expressed in
inflated prices. More FED-printed money doesn’t make Amazon or any
other company a more productive company. It may cause one company to produce
more, but it will be at the expense of some other companies producing less.
The aggregate economy cannot be made more productive by printing money. More
production of goods that people want takes land, labor and capital goods in
combinations that produce the desired goods. This is the work of a free
market economy, not a central bank or a government. Keynesians not only fail
to acknowledge this truth, they deny it.
As evidence, note that in the year following the FED’s
announcement, the stock market (the S&P 500) rose by 33.4 percent, but
gold rose by 44.2 percent. Gold is a real asset that is sensitive to the
inflation in fiat money that the FED possesses as one of its major tools. In
the following two years after the FED’s announcement (through Nov. 25,
2011), gold rose 65.9 percent and stocks rose 46.2 percent. After three
years, stocks were up 44.3 percent and gold up 102 percent. And through the
current date, gold is up 93.8 percent compared to a stock market rise of 79.2
percent.
In real gold terms, the stock market has not advanced in almost
4 years, despite the FED’s enormous money printing. It has not kept up
with gold. It will catch up and outperform gold under two conditions. The
first is that the FED does not start inflating again. The second is that the
government does not produce negative shocks to the economy. Without FED and
government negatives, natural economic recoveries occur.
The FED’s other reason for QE1 was to bail out the
government-sponsored housing agencies: Fannie Mae and Freddie Mac. It was to
bail out the institutional investors in the MRS securities, rather than let
them realize their losses. It was to prop up the prices of MBS, rather than
let investors take their losses. It was to keep the existing institutional
structure intact as far as possible.
The FED did a joint venture. It joined the central bank to the housing
agencies, which are already merged with the government. It did fiscal policy
through its power to buy securities. It did this without the necessity of
Congressional debate and approval, and Congress didn’t object. The FED
also made itself the main customer of financial intermediaries who originate
and hold the securities that the FED has purchased and may purchase in the
future. The FED integrated backwards to the government and forwards to the
financial markets. The FED spread.
Although some members of the FED have no qualms about exercising its
power in this way, it radically transforms the central bank into an arm of
the government that supports a targeted sector (the housing sector) by
subsidizing its cost of finance. If the FED targeted the defense sector or
the drug sector or the agricultural sector for such preferential financing,
the inherently fascist and inflationary nature of what it is doing would be
more evident. But since the government has been monkeying around with housing
for so long, there has been no widespread or general opposition to the FED’s
expansion. There has hardly even been recognition of its nature or of the
huge power that has lain dormant in the FED’s charter and now has come
out into the open (excepting various critics among whom Ron Paul and his
followers are prominent).
Let’s look at the size of the FED’s interventions.
The first $600 billion buying program that we’ve been discussing
is part of what is commonly called QE1. That program also included $300
billion of U.S. Treasury securities. QE1 later was expanded. On March 18,
2009, the FED added $850 billion to
the buying of MRS:
"To provide greater support to mortgage lending and housing
markets, the Committee decided today to increase the size of the Federal
Reserve’s balance sheet further by purchasing up to an additional $750
billion of agency mortgage-backed securities, bringing its total purchases of
these securities to up to $1.25 trillion this year, and to increase its
purchases of agency debt this year by up to $100 billion to a total of up to
$200 billion.
For completeness, I note that QE2 began on
November 3, 2010 when the FOMC announced an
additional $600 billion purchase of U.S. Treasury securities.
In sum, the FED said it would buy $900 billion of U.S. Treasury
securities and $1.45 trillion of MRS. The latter included $1.25 trillion of
MBS and $200 billion of GSE or agency debt.
At the present time, the FED has $946.373 billion of MRS. The FED has
reduced its holdings from their peak levels. The peak in MBS was $1,128.661
billion on June 23, 2010. The FED sold off or let run off (through
maturation) enough securities to reduce this to a local low of $827.052
billion on November 30, 2011. The MBS account is currently $856.997 billion.
The GSE hit a high of $169.011 billion on March 10, 2010 and has since been
reduced by the FED to $89.376 billion.
A footnote to the FED’s balance sheet says of the MBS
"Guaranteed by Fannie Mae, Freddie Mac, and Ginnie
Mae. Current face value of the securities, which is the remaining principal
balance of the underlying mortgages." The FED accounts for these
securities at face value, not market value. What’s of prime importance
here is the link between the FED and these government agencies, which in turn
are linked to the mortgage markets and the housing markets.
Fannie Mae and
Freddie Mac went bankrupt. The federal government placed them into a
"conservatorship". They have not been liquidated. They are still
operating. The federal government has the legal authority to advance funds to
these entities, limited only by the ceiling on the national debt. The FED
accomplished the other part of the bailout by keeping the MBS market going.
The FED’s purchases of MBS accounted for 32 percent of the total amount of
MBS outstanding at the end of 2009: "In short order, the Federal Reserve
became the dominant player in the secondary mortgage market."
At the present time the mortgage rate is 3.55 percent. In view
of this, what is now going through the minds of the Keynesians at the FED? As
the conventional thinking goes, they want to "stimulate the
economy". How? By lowering yields still further. Their position is
incredible. They would totally distort the housing market and the economy in
order to get to a number (7 percent unemployment rate). This is like
getting a patient to have a temperature of 98.6 by injecting some drug while
ignoring its destruction of the patient’s organs.
One of the effects of the FED’s buying was to raise MBS prices
and force yields lower. Several research papers estimate that during the
FED’s buying, mortgage rates fell by 0.3 percent to 1 percent due to
its buying. Mortgage rates fell after the FED stopped its buying and if that
drop is attributed to the FED, and not to a soft housing market, then the
estimate becomes 1 to 1.5 percent.
The FED’s balance sheet expansion has had two focal points: the
U.S. government itself (U.S. Treasury securities) and Fannie and Freddie (the
MRS). Now we have three FED presidents who want more buying of the MRS (and
perhaps Treasuries too). This time around the reason is not to bail out the
housing agencies and keep them going, although any such buying will have that
effect. They justify their proposals under the mandate from Congress to seek
full employment consistent with price stability. They would expand the buying
based, of course, on their belief that the result of the FED’s buying
will be full employment and price stability (the fourth tenet listed above).
"John Williams, president of the San Francisco Federal Reserve
Bank, said this week that the lack of progress on reducing the unemployment
rate and the slow economic recovery have convinced him it's time for the Fed
to move ahead with a third round of stimulus known as quantitative easing, or
QE3."
Rosengren says
"So we've only been treading water in the labor markets and, as
you just highlighted, the GDP reports have been disappointing. First quarter
was 2%. Second quarter was 1.5%. My expectation is the second half of the
year won't be much better. So given that we're only treading water, that's
the reason why I would advocate for a more accommodative monetary
policy."
Yikes! More accommodative? How accommodative can you get? Go ahead, buy every security in sight until their yields are
zero. Only you’ll never get there. Long before zero happens,
people will be taking the electronic digits you are paying them with and
converting them into real assets. Don’t these inflationists
realize that expectations can suddenly change, like a dam bursting? This is
not in their models. They are the sorcerer’s apprentices. If they go
too far in expanding the FED’s balance sheet, people are going to stop
believing that they will ever exit. They will begin to expect endless
inflation. The dam will break and a severe inflation will occur.
And whom are they "accommodating" anyway and why? Beware of
sorcerers who use cant and ritual. When they intone magic words like
"accommodation", "overcome frictions",
"instability", and ‘stimulate spending", they are
repeating the rituals they learned in their colleges and universities. It is
not as if there is a shortage of money. Our Keynesian central bankers think
that America is not at full employment because people cannot get loans at reasonable
rates. Yet the banks are loaded with reserves. Corporations are highly
liquid. Interest rates are low. The reasons for unemployment must be sought
other than in a lack of funds to lend. For an Austrian economics primer on
unemployment, see here.
Our inflationist trio is not thinking in terms of financial distress
as did the FOMC in 2008. They are thinking that the FED can and should bring
about full employment by bringing down mortgage interest rates.
The FED can bring about full employment. It can buy MBS extensively,
reduce the yield drastically, and induce people to borrow money to build and
buy homes. Since the government guarantees these securities, any losses will
be shifted to the government and taxpayers. Alternatively, by cutting the
rate it pays on reserves, it can induce banks to lend money to currently
sub-marginal borrowers. As they spend, employment will rise for awhile. The FED can create an inflationary bubble
economy. It has done this before. The government can also bring about full
employment. It can start public works programs. It can borrow money from the
FED and spend it, again creating an inflationary bubble economy.
The sorcerers on the FOMC can heat up the cauldron and create a brew.
But should these bubble economies be created by central authorities?
Should America in the 21st century be subjected to 20th
century policies of central control that in various forms failed after being put
into practice by fascist and communist dictatorships? Bubble economies crash.
The employment they create is unsustainable. People waste time and resources
in production that other people do not want. A bubble in housing means that
too many houses are being built and not enough of other goods that people
want. A bubble in consumption means that people are not saving enough to
finance capital goods. Economic growth then slows down. A bubble induces
speculation in land and stocks. Their overpricing leads to wealth
redistributions and resource mis-allocations.
America and other countries are now experiencing the consequences of a
severe housing bubble. Does it make sense to reinflate
a housing bubble or inflate other new bubbles as this trio of incompetent Keynesian
economists recommends?
If and when the FED draws people and resources into the production of
houses by subsidizing the cost of capital in the housing sector, they will be
drawing people and resources away from other sectors and industries. Why should
the FED have the say on what gets produced and what doesn’t? Obviously,
there is no place for such a privilege in a free society.
Did the people make the FED its economic czar? Never. People are just
beginning to learn what it is.
How can the FED possibly know what goods
should be produced so as to enhance the general welfare? It cannot.
Economists know this, but ignore it. A favorite phrase of economists who
write articles is "We will ignore..."
The FED is looking only at unemployment rates. Unemployment is not the
general welfare, not by a long shot.
How can the economy ever adjust if the FED is interfering with credit
and manipulating it in certain directions and not others? It can’t. How
can it adjust if the FED manipulates the overall cost of credit? It
can’t. What we have now with FED-directed monetary policy is a
continual manipulation of the economy because each such a manipulation is the
excuse for a subsequent intervention. This roller coaster is not at all
distasteful to the FED or the government. They batten on it.
It would take a separate article for me fully to convey to the reader
the actual degree of ignorance among economists, including those on the FED
and FED presidents. Just think of mediums or sorcerers with a distorted understanding
of the spiritual and you will be close. But I will give you the flavor of
what I have in mind.
To the layman their articles seem sophisticated due to their
mathematics and specialized vocabulary and techniques. But the fact is that
most all models are tentative tries at understanding. As an example, the FED
is supposedly trying to enhance welfare by its policy measures. The FED has objectives.
They are full employment and stability of consumer good prices. In meeting
these, it is supposedly making people better off. But a major review article
in a top economics journal titled "The Science of Monetary Policy: A New
Keynesian Perspective" co-authored by Mark Gertler,
who has been a close associate of Ben Bernanke for 30 years, says in 1999
that economists don’t know how to give good reasons for the FED’s
policies:
"While there has been considerable progress in motivating
behavioral macroeconomic models from first principles, until very recently,
the same has not been true about rationalizing the objectives of
policy."
It adds that "there have been a number of attempts to be
completely coherent in formulating the policy problem by taking as the
welfare criterion the utility of a representative agent within the
model." In other words, economists have tried to rationalize policy
measures by assuming that one person (a representative agent) stood in for
everyone in the economy.
These are mathematical-minded economists admitting in veiled language
that they cannot devise a model that supports the idea that the FED’s
policies enhance the general welfare. They then become more explicit:
"Another issue is that, while the widely used representative
agent approach may be a reasonable way to motivate behavioral relationships,
it could be highly misleading as a guide to welfare analysis. If some groups
suffer more in recessions than others (e.g. steel workers versus professors)
and there are incomplete insurance and credit markets, then the utility of a
hypothetical representative agent might not provide an accurate barometer of
cyclical fluctuations in welfare."
The words highly misleading give away the game. Modelers have
tried a single-agent approach to justify monetary policy, but it
doesn’t work. Why not? Well, obviously there are actually very large
numbers of distinctive persons and groups whose welfare varies with many
factors that no one-agent model can capture. Does this deter the
model-builders? Heck, no, they simply assume a mathematically
tractable objective function:
"...much of the literature takes a pragmatic approach to this
issue by simply assuming that the objective of monetary policy is to minimize
the squared deviations of output and inflation from their respective target
levels."
Then the cleverest among them finds some rationale for making that
simplifying assumption. Furthermore, the FED itself and its economists are
just as much in the dark as these economists who are trying to rationalize
monetary policy:
"Judging by the number of papers written by Federal Reserve
economists that follow this lead, this formulation does not seem out of sync
with the way monetary policy operates in practice (at least
implicitly)."
In another part of the same article, we are told
"In the wake of the October 1987 stock market crash, for example,
most economists supported the decision of the Federal Reserve Board to reduce
interest rates. This support was based largely on instinct, however, since
there is virtually no formal theoretical work that rationalizes this kind of
intervention."
That’s an open admission that the FED does not know what
it is doing.
Here is an example of that word "ignore":
"Finally, with few exceptions, virtually all the literature
ignores the issue of transition to a new policy regime. In particular, the
rational expectations assumption is typically employed."
Centrally-controlled money has all the defects of any
centrally-controlled (socialistic or fascistic) sector of an economy. The
controllers disturb equilibrating market processes. They distort incentives.
They cannot gather dispersed information and ever do justice to the decisions
of individual companies. They cannot fathom the considerations that go into
an individual’s welfare-enhancing decisions. There is no way for a
central bank committee to mimic the latter with some aggregate quadratic or
other loss function. They are bound to use limited models of an economy. Most
often, the models will simply be wrong. They will always be inadequate. These
statements and others appear via the Austrian (or any sensible) economic
analysis. They are confirmed by the 100-year record of the FED in action.
Some deluded people have the idea that 12 FED sorcerers (the number on
the FOMC) know enough to be able to turn the money faucets on and off at the
right times so as to make the economy work. They have never known enough
before and they will never know. That’s because an economy is not like
a flow of water that’s controlled by turning faucets on and off. Every
model the FED has ever had, from its simplest old Keynesian model up to its most
detailed new Keynesian models, has grave defects.
Now, for those who do not accept these conclusions and who think that
the 12 Keynesian sorcerers on the FOMC are the answer to whatever is causing
repeated banking crises, it needs to be said openly, loudly and clearly. No,
absolutely not. These twelve people, whatever their virtues,
are, in the face of a complex economy, stupid and ignorant people. So are we
all. What do I mean? I mean that no matter how good they (or any of us) are
in mathematics, model-building, and getting the computer to solve log-linear
equations numerically; no matter how many degrees they have, no matter what
their IQs are, and no matter how many journal articles they have published;
no matter how much they try to maximize some objective function that
supposedly mimics the general welfare, they will fail miserably. I would too
if I sat on the board.
The FOMC should be dissolved. It should be replaced by free markets.
They work. Mistaken Marxist sorcery on labor, profit, capital, and markets
needs to be buried and buried deeply.
Up to this point, I have written as if the FED had a legal warrant for
inflicting monetary policy on the populace. Now I switch trains. I attack the
FED on constitutional grounds.
It’s clear that the powers of the FOMC are enormous. The FOMC
members are in a privileged position. Should the members of the FOMC have
these powers? Absolutely not. Even for those who accept the U.S. government
and the U.S. constitution, the Federal Reserve (FED) is
unconstitutional (see chapter XII of The U.S. Constitution and Money).
There are basically seven reasons why the FED is unconstitutional:
1. The constitution allows only gold and silver coins to be the
government’s money, but the U.S. government has made Federal Reserve
notes into legal tender.
2. Federal Reserve notes are bills of credit, and the constitution
forbids the issuance of bills of credit by the state governments and the
federal government.
3. Even if the constitution were stretched to find some power under
which the federal government were able to issue
bills of credit legally, they would have to be redeemable in gold and silver
coin. Federal Reserve notes are not redeemable in anything.
The above three arguments apply equally well to greenbacks or any
other paper money directly issued by the U.S. Treasury.
4. If Congress actually had the money powers that the FED now
exercises, and if these were constitutional legislative powers, they’d
be vested in Congress. Congress could not constitutionally delegate them to
an agency like the FED.
Congress is supposed to be a branch of government directly responsible
to the People. The vesting clause of the constitution disallows setting up
agencies like the FED that are not directly responsible to the People.
Imagine, if you will, several analogues. Suppose
that Congress turned over its power to regulate commerce to a Board of
Governors of the United States Chamber of Commerce or to the Conference
Board. Or imagine that Congress turned over its power to provide for the
common defense to a Board of Governors of the National Defense Industrial
Association. These would be in your face violations of the constitution. In
the case of money, the U.S. government has totally abandoned its
constitutional money powers and replaced them with fabrications. It has then
built upon this already unconstitutional foundation by creating the Federal
Reserve System and the Board of Governors of this system and
unconstitutionally vesting it with its supposed money powers.
As a matter of fact, Congress already has moved considerably in these
and other directions. They are all unconstitutional. They all subvert the
constitution. They all separate the government from the People.
5. The FED draws money from the U.S. Treasury without a Congressional
appropriations process. This is unconstitutional.
6. Even if the power of the Congress to delegate money powers to the FED
could be found in the constitution, which it cannot, the actual nature of the
delegation made by Congress is unconstitutional. It fails to meet tests laid
down by the Supreme Court. The Congress apparently has delegated its whole
monetary power (if it even had this constitutionally). That’s
unconstitutional. It has not delegated the money power with definite
prescribed standards. That’s unconstitutional too. It has not issued
what is called an "intelligible principle".
7. The delegation made by the Congress is unconstitutional because it
has been made to private persons. These are the Federal Reserve Banks.
Congress cannot constitutionally give Eric S. Rosengren
or any president of the private Federal Reserve Banks the powers that he and
others like him have been exercising for decades.
So, anyone who accepts the legitimacy of the U.S. government and the
constitution has solid legal grounds for concluding that the FED and its
money are both unconstitutional. These grounds alone are enough to support
ending the FED.
Central bankers are modern day sorcerers using powerpoint
slides. They garb themselves in academic respectability. They garb themselves
in mathematical models and econometric estimations. They produce learned
papers written in guarded academic language that they abandon when they use
the power to print money. Powerpoint slides do not
necessarily commune with truth. What powers do these sorcerers actually
possess? The central bankers can print money and give credit to banks. They
can distort economic activity. They can cause bubbles. They can burst
bubbles, leading to recessions and depressions. But the FED cannot create
real value. The FED is a lunatic sorcerer. It boils up cauldrons
and splashes them into markets. It waves fiat wands and believes that its
liquids are producing oil wells and refrigerators. The economists who endorse
the black art of central banking and believe in its power are legion as are
the media figures who interview them and pollute the
airwaves with their sorcery.
That’s all it is. Sorcery.
Keynesian sorcery.
Lunatic sorcery.
Originally published at LewRockwell.com
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