Zero Hedge: The CATO Institute Finds That The Fed Must Be Abolished

A must read paper from George Selgin and the Cato Institute, which confirms what Zero Hedge has been saying since inception: the Fed must be abolished immediately:


"The Federal Reserve System has not lived up to its original promise. Early in its career, it presided over both the most severe inflation and the most severe (demand-induced) deflations in post-Civil War U.S. history. Since then, it has tended to err on the side of inflation, allowing the purchasing power of the U.S. dollar to deteriorate considerably.

That deterioration has not been compensated for, to any substantial degree, by enhanced stability of real output... A genuine improvement did occur during the sub-period known as the "Great Moderation." But that improvement, besides having been temporary, appears to have been due mainly to factors other than improved monetary policy.

Finally, the Fed cannot be credited with having reduced the frequency of banking panics or with having wielded its last-resort lending powers responsibly. Its record strongly suggests that the Federal Reserve‘s problems go well beyond those of having lacked good administrators. Although it has manifested itself in different ways during different decades, the Fed‘s failure has been chronic.

The problems appear to reside with the institution, and not with particular personalities who have been placed in charge of it. Hence the record would not be likely to improve substantially even with complete turnover in the Board of Governors. The only real hope for a better monetary system lies in regime change."






Ending the Fed is the only hope America now has. The outcome will be painful, but it will be surmountable. The alternative is the unquestionable end of America's status as a superpower.



Has the Fed been a Failure? PDF

Amid the economic wreckage that surrounds us, sometimes all you can do is laugh. In fact, I was nearly crying with laughter while watching "Quantitative Easing Explained," a devastating (but very funny) YouTube video cartoon smackdown (by Omid Malekan) of the Federal Reserve and its dangerously misguided efforts to get the economy moving again. Here are two brief snippets:

Woman: So, why do they call it the "quantitative easing"? Why don't they just call it printing money?
Man: Because the printing money is the last refuge of failed economic empires and banana republics, and the Fed doesn't want to admit this is their only idea.

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Woman: Who put the Ben Bernanke in charge?
Man: The Ben Bernanke was first appointed by the President Bush, then he was reappointed by the President Obama.
Woman: But wasn't the President Obama supposed to bring the change?
Man: Yes.
Woman: How has putting in charge the same fool who has been wrong about everything "the change"?
Man: Well, under the President Bush, the Ben Bernanke only blew up the American economy. Under the President Obama, he is working on blowing up the entire global economy.
Woman: That does not sound like the change we can believe in.
Man: Definitely not.

Admittedly, the dialog loses a bit of its hilariously sardonic edge when translated into written form, which is why I'd advise you to watch the video:

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BEAR I (Woman): How does the Fed execute the quantitative easing?

BEAR II (Man): They buy the Treasury bonds.

BEAR I: (Woman) Do they buy the Treasury bonds from the Treasury Department?

BEAR II: (Man) No they buy the Treasury bonds from the Goldman Sachs.

BEAR I: (Woman) You must be shitting me.

BEAR II: (Man) No.

BEAR I: (Woman) So let me get this straight. If I want to buy the Treasury bonds, with my money, I can buy them directly from the Treasury?

BEAR II: (Man) Yes.

BEAR I: (Woman) And if you want to buy the Treasury bonds, with your own money, you can buy them from the Treasury?

BEAR II: (Man) Yes.

BEAR I: (Woman) But if the Ben Bernanke wants to buy the Treasury bonds, using the American people’s money, he does not buy them from the Treasury, he buys them from the Goldman Sachs?

BEAR II: (Man) Exactly.

BEAR I: (Woman) And does the Goldman Sachs give him a good price?

BEAR II: (Man) Of course not, they are the Goldman Sachs, they make their living ripping off the American people.

BEAR I: (Woman) But how is the Goldman Sachs able to do this?

BEAR II: (Man) The Fed announces when it is going to buy, and what it is going to buy, before it does the trade.

BEAR I: (Woman) So the Goldman Sachs can front-run the Fed, and give them the worst possible price on the Treasury bonds?

BEAR II: (Man) Yes, exactly.

BEAR I: (Woman) And the Fed is okay with this blatant theft from the American people?

BEAR II: (Man) Of course, otherwise the Fed would just buy the Treasury bonds directly from the Treasury Department.

BEAR I: (Woman) Who inside the Fed is responsible for the buying of the Treasury bonds?

BEAR II: (Man) The buying of the Treasury bonds is conducted by the New York branch of the Federal Reserve.

BEAR I: (Woman) And who is in charge of the New York branch?

BEAR II: (Man) The head of the New York branch is the William Dudley.

BEAR I: (Woman) And what did the William Dudley do before running the New York Fed?

BEAR II: (Man) Before running the New York Fed, the William Dudley was a partner at the Goldman Sachs.

BEAR I: (Woman) So the guy in charge the American people’s money when dealing with the Goldman Sachs used to be a partner at the Goldman Sachs?

BEAR II: (Man) Yes.

BEAR I: (Woman) And nobody has a problem with this?

BEAR II: (Man) Apparently not.

BEAR I: (Woman) Is this an episode of the Twilight Zone?

This video went up on Zero Hedge yesterday, I believe. In the first minute you will want to throw both of these little bears in a sack and drown them, but by the end they win you over. There are so many things about QE that are crazy, but there’s one thing that I’d like to point out in particular. Yes, this is a huge money-printing program with potentially disastrous inflationary consequences. And yes, the influx of all this money could easily distort markets and prices far beyond the extreme distortions we’ve already been dealing with (commodities prices shot through the roof after this latest QE round was announced). But the thing I want to focus on is the subsidy aspect of QE, pointed out in the video. QE is designed to buy Treasuries and other assets, but the Fed does not simply go out and buy Treasuries itself; it does it through its primary dealers, who include of course banks like Goldman, Sachs. The Fed all but announces when it’s going to be doing this buying and in what quantity, which allows the banks to buy up this stuff at lower prices ahead of time and then sell it to the Fed at inflated cost.

Even forgetting about the obvious insider trading aspect to all of this, the official middleman status of the banks is a direct government subsidy and it is little remarked upon, even by the Tea Party crowd, which is otherwise so opposed to “welfare.” But these sorts of subsidies exist all throughout the financial services industry.

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QE is madness on a level far beyond the subsidy aspect, but the subsidy is worth pointing out.

Federal Reserve Chairman Ben Bernanke should resign and the Fed should be abolished as a way to boost the falling dollar and speed up the recovery of the U.S. economy, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe Wednesday.

Asked what he would do if he were in Bernanke's shoes, Rogers, who slammed the Fed for pouring liquidity in the system and accepting mortgage-backed securities as guarantees, said: "I would abolish the Federal Reserve and I would resign."
If this happened, "we don't have anybody printing money, we don't have inflation in the land, we don't have a collapsing U.S. dollar," he told "Squawk Box Europe."

The Federal Reserve announced on Wednesday a rescue package that it would put around $200 billion into banks and investment houses and allow them to put up risky home-loan packages as collateral.
Wall Street responded to the news with the biggest rally of the year, but Rogers reminisced of the 1970s, when the Fed printed money to avert a recession, boosting inflation and then forcing interest rates to more than 20 percent to keep a lid on price rises.

"No country in the world has ever succeeded by debasing its currency," he said. "That's what this man is trying to do. He's trying to debase the currency as a way to revive America. It has never worked in the long term or the medium term."

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Nov. 5 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke’s decision to pump a further $600 billion into the economy shows his grasp of economics is weak, said investor Jim Rogers, chairman of Rogers Holdings.

“Dr. Bernanke unfortunately does not understand economics, he does not understand currencies, he does not understand finance,” Rogers, 68, said in a lecture at Oxford University’s Balliol College yesterday. “All he understands is printing money.”

“His whole intellectual career has been based on the study of printing money,” said Rogers, who predicted the start of the global commodities rally in 1999. “Give the guy a printing press, he’s going to run it as fast as he can.”

The Fed said on Nov. 3 it will buy an additional $600 billion of Treasuries through June, in a bid to reduce unemployment and avert deflation. While Bernanke’s near-zero rates and $1.7 trillion in asset purchases helped end the recession, the Fed said progress has been “disappointingly slow” in bringing down joblessness that is close to a 26-year high.

“Debasing your currency has never worked,” Rogers said.

David W. Skidmore, a spokesman for the central bank in Washington, didn’t respond to a message seeking comment.

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