By former Rep. Ron Paul
The news that Janet Yellen was nominated to become the next chairman of the Board of Governors of the Federal Reserve Systemwas greeted with joy by financialmarkets and the financial press. Wall Street saw Ms. Yellen’s nomination as a harbinger of continued easy money. Contrast this with the hand-wringing that took place when Larry Summers’s name was still in the running. Pundits worried that Summers would be too cautious, too hawkish on inflation, or too close to big banks. The reality is that there wouldn’t have been a dime’s worth of difference between Ms. Yellen’s and Summers’s monetary policy. No matter who is at the top, the conduct of monetary policy will be largely unchanged: large-scale money printing to bail out big banks. There may be some fiddling around the edges, but anymonetary policy changes will be in style only, not in substance. What is obvious to most people not captured by the system is that the Fed’s loose monetary policy was the root cause of the current financial crisis. Just like the Great Depression, the stagflation of the 1970s and every other recession of the past century, the current crisis resulted from the creation of money and credit by the Federal Reserve, which led to unsustainable economic booms. Rather than allowing the malinvestments and bad debts caused by its money creation to liquidate, the Fed continually tries to prop them up. It pumps more and more money into the system, piling debt on top of debt on top of debt. Ms. Yellen will continue along those lines, and she might even end up being Ben Bernanke on steroids. To Ms. Yellen, the booms and busts of the business cycle are random, unforeseen events that take place just because. The possibility that the Fed itself could be responsible for the booms and busts of the cycle would never enter her head. As a result, the American people will continue to suffer decreases in the purchasing power of the dollar and a diminished standard of living. The phony recoverywe find ourselves in is only due to the Fed’s easymoney policies. But the Fed cannot continue to purchase trillions of dollars of assets forever. Quantitative easingmust end sometime, and at that point the economywill face the prospect of rising interest rates, mountains of bad debt and malinvested resources, and a Federal Reserve which holds several trillion dollars of worthless bonds. The future of the U.S. economy with Chairman Yellen at the helmis grimindeed, which provides all the more reason to end our system of central economic planning by getting rid of the Federal Reserve entirely. Ripping off the bandage may hurt some in the short run, but in the long term everyone will be better off. Anyway, most of this pain will be borne by the politicians, big banks and other special interests who profit from the current system. Ending this current system of crony capitalism andmoving to soundmoney and freemarkets is the only way to return to economic prosperity and a vibrant middle class.