When founded in 1914, the Federal Reserve’s sole purpose was to ensure the dollar maintains a stable value. Since 1914 the dollar has lost 98% of its value, and since 1971 when President Nixon ended gold backing for the dollar, it has lost over 85% of its value. In the next few years, as the Fed prints and adds TRILLIONs to the currency supply, the dollar will likely lose 100% of its value! THE FED HAS FAILED ITS MISSION and should be ended effective immediately!
Particularly since the Greenspan years, the Federal Reserve has abandoned its mission of stabilizing the dollar in favor of three alternate missions:
- Preventing recessions
- Propping up failing banks
- Preventing stock market downturns
The Fed has lost sight of its core mission, and as a result they have now lost control of the monetary system!
The Federal Reserve has NEVER been charged with “preventing recessions”. Throughout most of its history, the Fed has actually been the cause of recessions….by design!
As the old saying goes, they would “take away the punch bowl just as the party was getting started!”
From the 1940s and into the 1970s, one of the most stable periods in American history, the Fed would raise interest rates to slow the economy just as the growth cycle began to pick up. In so doing, they would prevent financial excesses, too much debt, and stock market bubbles.
This “taking away the punch bowl” activity can be compared to small detonations on a snow covered slope to help prevent avalanches.
Just as if ski resorts were to fail to minimize avalanche danger with periodic detonations, the Federal Reserve appears to have replaced its mission using periodic recessions to maintian a stable dollar with a mission where financial risks are allowed to build up to unprecedented levels.
Just this week, Bank of America analysts released a study showing just how big the current financial bubble is when compared to all other recent financial bubbles. The chart below shows the result (the red line is the current bubble!):
No financial bubble ends well, and this one is no exception. Because of its size, it will end in a financial disaster much worse than the smaller previous bubbles before it!
The Fed has completely FAILED in its mission to prevent this buildup, and they have done so by cheapening the value to the dollar with their “quantitative easing” currency printing operations. Those operations have done the complete opposite of creating a stable dollar! These bubbles are not possible with a stable dollar!
PROPPING UP FAILING BANKS
In September 2019, the Fed began adding nearly $1 Trillion to the currency supply to rescue the overnight lending market between banks (aka the “Repo Market”). On September 17, the repo market locked up and interest rates between banks spiked from 2% up to 10% in seconds. The banks didn’t want to lend to each other…..even at 10%!
The reason they didn’t want to lend is because either they didn’t have the money to lend, or they didn’t believe it was safe to lend.
When interest rates rise, that is a market-based signal that risk has increased. The Federal Reserve completely disregarded this risk, and printed currency to rescue one or more financial institutions/banks that probably would have otherwise failed that night! The Fed is STILL creating TENS OF BILLIONS of dollars nightly to rescue this stressed market!
With all this extra currency being printed nightly, they are diluting the value of the dollar!
By rescuing failed banks, the Federal Reserve is abandoning its core mission to maintain a stable dollar! What they should do, is let those poorly run banks fail….or shut them down. That is the way a capitalist system works! Poorly run businesses go out of business!
PREVENTING STOCK MARKET DOWNTURNS
The stock market is supposed to go up AND down, with a general bias over decades being up due to increased innovation and prosperity. But according to former Federal Reserve Board chairwoman Janet Yellen, the stock market should never go down, and should certainly never crash.
Quoted in a ZeroHedge article this week, Yellen indicated that the Fed should directly buy stocks in the next crisis.
Legally right now, the Fed cannot directly buy stocks. Such an action would NOT serve to prevent a crisis, and in fact would only serve to extend it!
By purchasing stocks, with currency created from nothing, the Fed is injecting its assessment for what “fair market values” are in place of what the market is saying fair prices should be! What if oil prices fall too low? Should they be buying oil too? What if milk prices fall too low? Or car prices?
By injecting themselves into markets, the Fed is playing God, which usually doesn’t end well! Additionally, they would be printing more currency to buy those stocks, further diluting the value of the dollar they committed to stabilizing!
The should stay out of ALL markets. They are NOT God, especially evidenced by the fact that they have NEVER done what they said they would do….stabilize the dollar! God, according to religious texts, does what he says!
THE FEDERAL RESERVE HAS FAILED
Of course, if the Federal Reserve immediately reversed course and began stabilizing the dollar, the financial bubble described above would immediately pop causing a severe financial depression. No Fed board member wants that situation on their watch!
By the same token, to continually destroy the dollar to prevent the depression while the bubble continues to grow, the inevitable financial depression will be even larger. It needs to pop sooner than later to prevent even greater turmoil!
The Federal Reserve, a PRIVATE CORPORATION designated as America’s central bank, has miserably FAILED the American people, and the world. They have abandoned their mission to keep the dollar stable, and have undertaken unprecedented measures to print TRILLIONs of additional dollars to chase missions they were never assigned by Congress!
This abuse of power by the Fed is destroying the American dream, by inflating prices like never before. Through their inability to follow a simple mission to stabilize the dollar, they have lost all control over the monetary system!
This should NEVER be allowed to happen again! The Fed should be ENDED IMMEDIATELY, and the dollar should be replaced with a new GOLD currency called the “ounce”.
Of course pundits of a pure gold standard would argue that there isn’t enough gold in the world to support a gold standard. The pundits are wrong! There is plenty of gold, but it would need to be repriced to match the currency supply in circulation. But that discussion is for another topic!