Howard Blitz

More About: Federal Reserve

Fed solution is cause of Problem

Federal Reserve System (FED) board chairman Ben Bernanke has pledged to lower interest rates as needed in order to avoid a possible recession.  Another Federal Reserve official stated that the FED will do whatever is necessary to prevent damage to the United States economy caused by the current credit crunch and to foster sustainable economic growth and price stability. 
However, it is precisely the tinkering with the free market system and the control of the money supply by the FED that caused the credit crunch in the first place.  The solution offered is like telling the guy who is experiencing his Saturday morning hangover to drink more beer so he will feel better when in fact it was the over drinking that caused the hangover to begin with. 
The Federal Reserve System is the only authority that can legally create money and one of the methods used is by artificially lowering the discount interest rate which impacts the movement of other interest rates.  The price of goods and services in any economy is what tells producers and consumers what and how much to buy and sell.  Individuals respond to lower prices by increasing their purchases and decrease their purchases when prices increase.  Producers on the other hand tend to reduce their production when prices decline and increase production when prices increase.  By tinkering with the price of money (interest rate) the FED artificially encourages individuals to borrow and spend more than they normally would.  In other words it gives both consumers (spenders) and suppliers (savers) of money a false signal similar to the false signal the beer drinker receives when he drinks an excess amount whereby his body appears to feel pretty good.  The individual receives a false sense of security. 
As a result of the artificially lower interest rates caused by the FED individuals borrow and spend money they do not have laying the groundwork for the soon to be economic hangover.  This scenario has been played out over and over again ever since the depression of the 1930’s.  Because of politics the FED never allows the economy to go through the withdrawal that is necessary to flush out the excess money in the economy, just like the body flushes out the excess alcohol in order to get itself back to normal.  If the individual never allows his body to correct itself and continues to drink, a very severe illness results or even death.  If the FED continues to control the money supply and increases it every time the economy attempts to correct itself (i.e. artificially lowers interest rates), the value of the currency (money) depreciates at faster and faster rates as is being seen today, and the economic welfare of everyone is impacted negatively. 
History is strewn with examples of the results of government officials printing money to pay expenses.  At times between 1920 and 1923 the nightmare German inflation resulted in the cost of living for the German citizen to increase 1600 percent in 6 months.  Argentina in 1989-90 had a 20,000 percent annual inflation rate.  The old Soviet Union was brought to its knees because of hyper-inflation.  The current inflation situation in Zimbabwe where a single two- ply sheet of toilet paper costs $US400  is another example of how the printing of money by government authorities damages the economic lives of individuals, especially those in the lower income category. 
The American founding fathers witness this type of inflation when they tried to pay for the revolutionary war with printed dollars.  The confederacy during the civil war experienced the same result, extremely high prices and a depressed economy. 
Congress is no help either because its members think that reducing taxes and increasing government spending is also the solution to the economic woes of America.  However, exercising that thought just increases the deficit which increases the amount of interest needed to pay for the extra borrowing that is incurred putting even more pressure on the FED to print even more money. 
Government expenditures must be reduced if the economy is to grow. 
If FED officials truly care for the American people and desire economic growth and want to foster stable prices, they would abandon all activity in setting interest rates, get out of the business of controlling the supply of money, and shut the doors of the Federal Reserve. 
By letting the economy squeeze itself of the excess dollars and leaving the economy alone, individuals will then have a true picture of the real price of goods and services and be able to make more accurate decisions about their purchases and how much to produce just like the body is able to return to normalcy after it squeezes out all of the excess alcohol it took in. 
Real economic growth takes place through individual savings and investment not increased government spending financed by the printing of money.
An opportunity to earn a $1,000 scholarship through The Freedom Library Education and Scholarship Program begins again February 5 at 6 PM.  Please register through the website at or call 726-8050 for more information. 
Conrad Ballweg, volunteer coordinator for the two initiatives being circulated concerning Arizona property tax reform, will discuss those initiatives tomorrow evening at 7:00 at The Freedom Library.  The public is invited to attend free of charge.

1 Comments in Response to

Comment by Powell Gammill
Entered on:

Hey, let**Q**s fight inflation with . . . inflation.

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