End. The. Fed.
A modest suggestion for a more honest world
Joel Bowman, appraising the situation from Exaltación de la Cruz, Argentina...
Welcome to another Sunday Session, dear reader, that time of the week when we pull up a barstool at the virtual watering hole and survey the state of the world, such as it is.
And here we beg some perspective from our older wiser readers...
Barely a week goes by when we are not invited to read some story or another about Jerome Powell’s latest utterance. The man seems to be “top of mind” not only for investors and stock traders... but for savers, home-owners and wage-earners, too. Aspiring retirees read into his every gesture... gas station attendees discuss his latest remarks... bingo club members dissect his speeches for hidden messages and subliminal motivations...
Herewith, a handful of headlines from just this past week:
Jerome Powell’s choice: More misery or less misery (The Hill)
Fed Chair Powell is having a communication problem with the market (CNBC)
Jay Powell’s dream of the 90s is dead (CNN)
“Will he... or won’t he?” the nation’s workers whisper at water coolers and in locker rooms from sea to shining sea. “And by how much?”
Chairman… Martin?
Every skerrick of economic data that hits the presses is filtered through the prism of “What Will Jerome Do?” (WWJD?) And every talking head has an opinion...
Was it always this way, we wonder? Did the Fed Head always command the nation’s attention thus?
William McChesney Martin Jr. is the longest serving Chairman of the Federal Reserve. Stretched over 18 years and 304 days, from April 1951 to January 1970, Mr. Martin’s tenure straddled four presidencies – Truman, Eisenhower, Kennedy and Johnson. (He was eventually relieved of his post by President Nixon, who was apparently unimpressed by his tight monetary policies.)
Now, how many folks growing up in the ‘50s and ‘60s tuned in to see Chairman Martin give two decades worth of public addresses? Besides econo-nerds and policy wonks, how many people visit Mr. Martin’s resting place, either to lay flowers or to desecrate it? How many present day octogenarians and nonagenarians even recall what the man looked like?
As for the present Fed Jefe, Jay Hayden, he’s practically a household name. To be sure, we have nothing against the man personally. He has nice hair, an admirable sartorial sense and an avuncular manner. He probably shows up to work five minutes early and believes everything he says. After all, like government functionaries since time immemorial, he’s “just doing his job.”
Only, we wish he didn’t have to. That is to say, we’d like to see Mr. Powell – and his jostling, would-be successors – spend more time playing golf, cavorting with other gazillionaires and doing whatever it is elites do when they’re not fiddling with our money, dreaming up policies and imagining a “better world.”
In this spirit do we present today’s feature column, below. Please enjoy...
End. The. Fed.
By Joel Bowman
“The Federal Reserve... is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”
~ William McChesney Martin
Choppy action in the markets of late, wouldn't you say? That's what you get when the tub is full of Fed-faked funny- money. Bigger waves...more tumult...less predictability. And a whole lotta motion sickness along the way.
Markets are always and forever in a process of price discovery, torn between demand for lower prices from buyers on one side, and the profit motive from sellers on the other. Somewhere in the middle, the two parties will come together to exchange their goods and services. In other words, they "discover" an agreeable price at which everyone finds value. This is what the free market does naturally. Low prices invite demand...driving prices higher. High prices invite competition (supply)...driving prices lower. Between the two is where honest hands shake.
Obviously, therefore, you expect a bit of movement, a bit of price fluctuation as buyers and sellers jostle for position. What you don't expect is multi-hundred point daily swings in the stock markets. You don't expect gold to jump $20, $30 or more in a 24-hour period. (Remember, before FDR confiscated all the gold in the land back in 1933, an ounce of gold was only "worth" $20. More correctly, a dollar was worth 1/20th an ounce of gold. Then, in one fell swoop, the original New Dealer "revalued" the metal to $35 an ounce, thereby devaluing the dollar to 1/35th an ounce of gold.)
The point is, a $20 or $30 movement in the price of gold back then would have been unthinkable (but for political strong-arming). Today, with the dollar having been beaten, bludgeoned and fisticuffed down to less than 1/1,750th an ounce of gold, twenty bucks here or there is hardly worth mentioning, such is the woeful state of the world's leading fiat money.
Of course, markets don't demand fiat currencies. Free individuals don't wake up one day and say to themselves, "Gee... wouldn't it be nice if we had an unquestionable, unaccountable, centrally controlled monopoly on counterfeiting to help debase our medium of exchange, saddle the populace with that most insidious of all taxes – inflation – and to sell our kiddies future down the drain? I know, let's create a Federal Reserve!"
A Modest Suggestion
Such institutions don't come about "naturally." They require political pull and the gun-for-hire that is the government. They take cover behind rooking legalese, as is found in "The Federal Reserve Act of 1913," and the absurd prevarications of its "dual mandate," which is, at present, sold to a terminally credulous public under the noble-sounding, though entirely erroneous mission statement of "price stability and maximum employment." (We covered the latter last week; this week, the former.)
Anyone with a basic, non-Ivy League-approved understanding of economics knows this to be a ridiculous goal in the first place. For one, left well enough alone, gold takes care of price stability itself. Has done for thousands of years. Price instability is the direct result of fiat monies and manipulation of the money supply by self-serving central banking cartels. From tulipmania to techmania, one can find, at the rotten heart of every inflationary crisis, a central banker with an equally rotten brain.
As for the "fetish of full employment," as Henry Hazlitt so eloquently explains in his classic, Economics in One Lesson:
"The progress of civilization has meant the reduction of employment, not its increase. It is because we have become increasingly wealthy as a nation that we have been able virtually to eliminate child labor, to remove the necessity of work for many of the aged and to make it [financially] unnecessary for millions of women to take jobs.
"The real question," continued Hazlitt, writing in 1946, "is not how many millions of jobs there will be in America ten years from now, but how much shall we produce, and what, in consequence, will be our standard of living?"
The Fed is the work of Woodrow Wilson...a creature of Congress. As George F. Will, writing in The Post, once put it, mission creep is part of the "metabolic urge" of government agencies. The Fed is no different. It is an Ouroboros running out of tail on which to feed. There's nothing free market about this beast, dear reader...and nothing free market about the economy that stands on its serpentine scales.
Without space for competing currencies, the invisible hand is bound and cuffed, unable to feel around in the dark, to set reliable prices. Value is distorted, malinvestment promoted.
In the end, you get unpredictable stock market volatility and a dollar shaved to within 1/1,750th of its life. Exactly what you'd expect, in other words.
The solution? Here, a modest suggestion:
End. The. Fed.
Instead, allow competing banks to issue competing currencies. Allow the fundamental underpinning of an economy – its medium of exchange – to discover its own "fair value." Witness competition weed out banks that lend imprudently and rip off customers, to the favor of those operating with prudence and fiscal integrity. Watch institutions that choose to issue baseless, paper money go bust without federal bailout funds and those that adhere – freely, without let or hindrance – to a gold standard garner the public trust their thrift and judiciousness earns them.
Wishful thinking, you say? Almost certainly. Which is why, until such a fantsy comes to pass, here's another suggestion, courtesy of our Reckoner-in-Chief, Bill Bonner:
"Buy gold. Be happy."
And now for some more Fatal Conceits...
Earlier this week we caught up with Bill’s International Real Estate Scout, Mr. Ronan McMahon. A 25 year veteran of the markets, Ronan’s got his finger on the pulse of just about every sunset coast, golf course and soon-to-be-booming resort town you’ve never heard of.
He generously lent us an hour of his time, which you can listen to – gratis – right here…
As always, feel free to like, share and comment on our weekend words. Should we abolish the Fed? Is a mere audit, as some have called for, sufficient? Perhaps free market monies have a role to play in voluntary human affairs? Let us know your thoughts, below…
And that will do it for another Sunday Sesh. Tune in again tomorrow for Bill’s regular daily missives. In the meantime, we’re off to enjoy an unhurried lunch with friends out in the campo.
Until next time...
Cheers,
Joel Bowman
This is the obvious truth! SUPERB. End the Fed now. Reduce the size of the political system and let free markets provide our wealth. The easiest solution to our excessive debt and failing economy is to remove the government's i.e. political influence.
Joel's essay on the Fed, monetary policy, and gold is the best, most concise essay on the subject I've ever read. And I'm 72 years old. Unique to BPR is aged wisdom on wealth set forth in robust language. It's wisdom cloaked in beauty and jabbing prose, even when the message is unsettling. But woven into that message is a well-reasoned acton plan that provides a balance to the world-gone-mad around us. Thanks for the fine work you are doing.