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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.
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