Federal Reserve Bank of Boston Responds to The Silver Underground’s Recent Anti-Fed RantNovember 17th, 2011
In an anti-Fed rant yesterday, I criticized Ben Bernanke for saying that any criticism of the Federal Reserve is based on misconceptions. What are these misconceptions? Give me an argument; don’t just say I’m wrong and then rest on the laurels of your credentials and prestige. I wrote:
“I would like to hear Bernanke elaborate on his claim. I would like to understand just what it is that I don’t understand when I criticize the Federal Reserve Bank. How are my conceptions actually misconceptions?”
What do you know– the very next day, The Federal Reserve Bank of Boston posted the text of a speech that Boston Fed President Eric Rosengren gave today, entitled Four Common Misconceptions About the Federal Reserve. Now I’m not seriously suggesting that The Boston Fed was responding to us, but it’s a pretty cool coincidence, especially since we know they’re reading blogs that talk about them and we’ve actually seen the traces of the Boston Federal Reserve IT department in our analytic logs. Cool, huh? Intentionally or not (again, probably not), The Boston Fed president answered my exact question and I’ve got to give him credit for doing that much. Of course I also have to rebut his answers, because they’re pretty weak.
Common Misconception 1:
The Federal Reserve is not audited and its actions occur without oversight.
The Boston Fed president goes to great lengths to show that the Federal Reserve actually is audited and has plenty of oversight. He says, “all twelve Federal Reserve Banks employ professional internal auditors.” Yeah, internal auditors. He says, “an outside audit firm, Deloitte & Touche, audits our financial statements.” But that’s not the same thing as a full, top-to-bottom, public audit is it? It’s not even the same thing as the one-time, partial Dodd-Frank audit, which uncovered scandalous conflicts of interest at Federal Reserve banks and also clued the American people in to the $16 trillion that the Fed created out of thin air and loaned out to exclusively large financial institutions at zero percent interest. You see, I think it’s the Boston Fed president with the misconception: Fed critics don’t believe that the Fed isn’t audited. They know that the Fed isn’t subject to a full, public audit, so that We The People know everything going on at the world’s most powerful financial institution. And it’s curiously suspicious that the Fed and its supporters are so opposed to such an audit. What are you so afraid of?
Common Misconception 2:
The Federal Reserve is not a transparent organization.
The Fed President says misdirects:
“Let me admit that in the midst of the financial crisis in the fall of 2008 one could fairly say that we did not spend sufficient time explaining to the public the unique and extraordinary actions being taken. All I can say is that in the midst of the crisis there was a focus on solutions, and given the severity of the situation, this resulted in our spending less time communicating well about what we were doing and why.”
He goes on and on about how The Federal Reserve is so much better at communicating to the public than it used to be. That’s not transparency; that’s PR. That’s not opening your books and letting us see everything you do; that’s hiding all your blemishes and flaws under the veneer of carefully-crafted speeches and press releases. That’s not letting in the sunlight; it’s putting on your stage make-up and turning on the spot lights (taking extra care to aim those spotlights at just the things you want your audience to see). Transparency? Poppycock! While doing all that communicating, the Fed forgot to communicate to the public just how many trillions they were magically creating and lending out. If there were real transparency at the Fed without some legislative reform, it wouldn’t have taken a legislative measure for us to learn about that. Now I’d like an even more thorough audit on an annual basis, and according to polls, most Americans agree with me. That would be transparency.
Common Misconception 3:
“Printing money” has caused serious inflation.
The Fed president argues:
“However, while the most rapid growth in reserves occurred three years ago, Figure 8 shows that over the three-year period ending last quarter the U.S. has experienced the lowest average inflation rate of any such period over the past thirty years. Over the past three years, total personal consumption expenditures (PCE) inflation has averaged only 1.2 percent.”
Legerdemain. The entire argument is predicated on some fancy macroeconomic legerdemain– smoke and mirrors, sleight of hand, trickery, deception… lies. Okay, the Federal Reserve’s own favorite metric for measuring inflation says that the U.S. has experienced low inflation. Too bad the dollar isn’t just a U.S. currency. It’s the world’s reserve currency. Other countries use it to trade with each other for global commodities. If the Fed’s rapid expansion of the money supply isn’t causing inflation, why are food prices skyrocketing around the world? And the prices of other global commodities? Why did Egyptians riot in the streets and overthrow their government because of food prices? What caused that? The Fed radically expands the money supply and world food prices skyrocket– and that’s just a coincidence, not inflation? What about gold and silver appreciating so rapidly against the dollar? Energy prices? These aren’t the result of the expanding monetary base?
And again, Boston’s Fed president doesn’t fairly represent the argument of Fed critics: they aren’t just saying that monetary expansion has already caused serious inflation– they actually believe the worst of it is yet to come, and they have been saying so. When the Fed first expands the supply of money with a fresh loan to a big bank, those dollars are as strong as any other dollars out there. The big bank gets to spend that money first, before it’s lost its value to inflation. By the time those dollars get around, they’ve devalued the currency and they– along with the dollars in the rest of our pockets– become worth less. Sooner or later, as a mathematical reality, and according to the uncontroversial, textbook economic theories of supply and demand, something will have to give and the breakneck expansion of the monetary supply will lead to monetary collapse. The school of economic thought whose adherents predict this (The Austrian School) have demonstrated an uncanny ability to predict monetary events for a century now. I’m going to listen to them.
Common Misconception 4:
Rates are already low so further monetary policy actions will have no impact on the economy.
Bahahahahahahah! Who says that? I’m afraid I don’t know who, but I do know this: those critics of the Fed who are “guilty” of the first three “misconceptions” listed above definitely aren’t guilty of this fourth one. I’ll hand it to you, Rosengren– that is definitely a misconception. But Boston’s Fed president thinks it’s a misconception when it includes this implicit qualification: “Rates are already low so further monetary policy actions will have no positive impact on the economy.” The rest of the Fed’s critics– the ones who believe in the first three “misconceptions” above– believe that further monetary policy actions (i.e. creating more money) will absolutely have an impact on the economy– a negative one. They’re calling on the Fed to “stop printing the money!”
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