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.
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