The Fed at 100: It Isn’t Working

By: Michael Clayton

Yesterday afternoon I attended a panel discussion at the Heritage Foundation titled, “The Federal Reserve at 100: How Well Has It Done?” The discussion was very interesting, led by 3 scholars who have extensive experience with the subject, including one former Fed employee.

The panel started with an introduction from former Senator Jim DeMint, who is now the president at Heritage. He noted how the Federal Reserve was not an issue that Heritage dealt with in the past, but that will change now that he is at the helm. As you may remember, DeMint was an outspoken supporter and cosponsor of Audit the Fed while serving as U.S. Senator for the state of South Carolina.

The first panelist to present was Dr. Lawrence White, professor of Economics at George Mason University. Dr. White claims that QE1 & QE3, the Fed policies of buying $75 billion per month in mortgage-backed securities, are in fact not a monetary policy at all. Instead, they are “credit allocation programs” and that fail to be “consistent with the rule of law.”

More specifically, Dr. White wanted to provide insight on whether or not the Fed has done a better job than the pre-Fed gold standard. He has found a few notable contrasts to the classical gold standard:

  • The Fed has increased inflation
  • The Fed has created price level uncertainty
  • The Fed has not reduced output volatility
  • The Fed has not reduced costs of monetary gold production
  • The Fed has not reduced unemployment
  • In Sum: The Fed has not improved our situation

The next panelist was Dr. George Selgin, professor of Economics at the University of Georgia. His presentation was titled, “Operation Twist-the-Truth: How the Fed Misrepresents its History” and focused on the massive propaganda efforts that are vetted by the Fed and vital to its success.

He specifically focused on particular claims that the Fed has perpetrated over the years, such as:

  • Banks weren’t regulated before the Fed: FALSE
  • The Federal Reserve operates independently from the Federal Government: FALSE
  • Price stability is better than under the gold standard: FALSE
  • The Fed is helping us recover: FALSE, and he went on to note that we are currently in the midst of the slowest recovery ever. We would have been better off doing nothing.

Finally, the last panelist was Dr. Jerry Dwyer, visiting professor at Clemson University and former VP of the Federal Reserve Bank of Atlanta. His presentation was the most anticipated, as everyone in attendance was eager to hear the opinions of a former Fed employee.

Although calling himself a libertarian, it was clear from the beginning that Dr. Dwyer was not an opponent of central banking. He focused on “The Federal Reserve in the Financial Crisis of 2007-2008 and Since.” He spoke about the inability of the Fed to make any clear decisions during the recent crisis, and the lack of consistency in which firms they did and did not decide to bailout (Bear Stearns vs. Lehman Bros.).

However, despite spewing loads of economic jargon, Dr. Dwyer made a few statements that really caught my attention:

  • The Great Depression was partly the Fed’s fault
  • Quantitative Easing cannot accomplish the Fed’s goal on lowering the unemployment rate
  • The recent financial crisis could have been handled better
  • Fed transparency is key to successful monetary policy

Unfortunately, not one of these three scholars seemed to believe that the Federal Reserve System should be abolished. Despite Dr. White’s belief that the Fed has not improved our situation, Dr. Selgin’s view that the Fed has hindered our current recovery, and Dr. Dwyer accepting that QE cannot lower unemployment, these three members of academia still believe that central banking can work. According to them, the Fed just needs to follow it’s own rules better.

I was happy to attend an event that was highly critical of the Federal Reserve, but I am disappointed that these men were not willing to challenge the acceptance of central banking in our society.

The Federal Reserve is without a doubt the tool that has fueled our massive, debt-ridden federal government. Without such an abysmal system in place, elected officials and federal bureaucrats would be forced to live within their means: no overbearing entitlement programs, no unnecessary wars, no pork-barrel spending.

History has proved that central banking is not sustainable and that it will lead to the collapse of the dollar, the abolition of our liberties, and the end of the American Dream.

If you have not already done so, I urge you to please call your Congressmen at 202-224-3121 and demand that they support Audit the Fed, H.R. 24 & S. 209.

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