The Fed: Falsehoods and Myths

Among other false items, which are too numerous too list in their entirety:

• The federal government in Washington is an essential agent in providing economic security and stability for the country as a whole. False.
• The entire economy of the country can be beneficially manipulated through macroeconomic policies devised and executed in Washington. False.
• Americans cannot be trusted to operate the price and market system on their own. They need constant supervision and regulation (from Washington) of almost every element of economic activity. False.
• The economic activity of Americans needs constant correction and adjustment by Washington (as to consumption, saving, employment, interest rates, investment, production, credit, liquidity, mortgages, etc.) False.
• Americans cannot be trusted to produce money and credit on their own. They need Washington to do this. False.
• The country’s economy is unstable and needs constant control and guidance from Washington. Otherwise, recessions and unemployment occur that Americans cannot themselves correct. False.
• Economic stability requires an overall monetary policy stemming from Washington. False.
• Americans are unable to produce a stable price level (to the extent that such a thing is measurable). They need the FED to do this for them. False.
• Maximum employment is a socially optimal objective. False.
• The federal government and the FED do not create economic instability and insecurity. False.
• The federal government and the FED are capable and adept at moderating and alleviating economic instability at little or no cost. False.
• Exceptional performance of the economy, when it occurs, is due to the skill and wisdom of Washington’s economic policy makers who successfully manipulate Americans into behaving in their own interests. False.
• The FED has had success in producing price stability and moderating the business cycle. False.

Myths:

Myth #1 is that its inflation offsets the negative economic effects that are occurring. Their theory is that the costs, if any, of inflation are lower than the benefits.

Myth #2 is that the FED’s loans offset economic problems by providing liquidity to the private sector and supporting credit extensions.

Myth #3 is that the FED promotes systemic stability by supporting such institutions as AIG, Citigroup, Fannie Mae and Freddie Mac.

Myth #4 concludes by saying that the government has an interest (on behalf of the public) in supporting the systemic company when it has troubles.

No part of Myth #4 is true, and every part of it is inconsistent with a free market economy. Either one has a market economy or one has state socialism or fascism. There is no middle ground, for the reason that when the government becomes a player in any given market, the fundamental character of that market disappears.

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My thoughts: Bread and circuses will keep the American people occupied until we run out of bread and circuses.