The Federal Reserve’s Commitment to Unstable, Political Money

Kyle Ebersole

Bernanke speaks and gold prices jump.

On Wednesday The Federal Reserve’s Federal Open Market Committee announced its plans to promote “maximum employment”, “stable prices”, and “moderate long-term interest rates” in order to normalize the economy — at the same time the price of gold shot up over 2.6% and has continued to climb since.

Why? The Fed’s decision to keep interest rates next to zero through 2014 — rates they initially wanted to extend through 2015 — says more monetary inflation is coming. Phil Streible of RJO Futures assures that “Inflation will be created … the Fed is artificially creating inflation for the next couple of years.”

While admitting to such inflationary measures, the Fed claimed it will adjust its target to 2%.  However, according to Euro-Pacific Capital’s Peter Schiff such a projection is inaccurate; Schiff claims “to hold rates so low for so long, the Fed is choosing to ignore all signs that CPI inflation is currently running north of 3%.” What’s worse, Larry White of George Mason University reminds us the Fed will “will tolerate inflation above their preferred rate.” (emphasis added)

The Fed’s injection of dollars into the economy, inflation, only hurts savers and savings – and savings is real wealth. The reality of this situation is this: On Wednesday, the Federal Reserve committed to slowly punish those who have been responsible enough to save by transferring the value of their saved dollars to ‘the economy’.¹ Policies like these reward the spendthrifts, punish the frugal, and are altogether immoral. (Is not the elderly couple living on a fixed income entitled to the full value of their dollars? Are such retirees not being robbed through inflation and value redistribution?)

In an article in the Wall Street Journal, David Malpass describes the Fed’s actions this way:

“Dollar weakness doesn’t work at all for economic well-being. The corollary to the Fed’s policy of manipulating interest rates downward at the expense of savers is declining median incomes. It’s no coincidence that inflation-adjusted median incomes rose in the sound-money booms of the Reagan and Clinton administrations and fell in the weak-dollar busts during the Carter, Bush and Obama years. When the currency weakens, the prices of staples rise faster than wages, hurting all but the rich who buy protection.”

Malpass also describes the Fed’s near opacity and lack of accountability: “The Fed’s status in Washington is unique and practically unassailable. It alone is a colossal self-funder operating outside the congressional appropriations process. Even the CIA and Navy Seals don’t enjoy the Fed’s unlimited spending power, checked only by its handpicked board and senior leadership.”

As we have already seen, the Federal Reserve is committed to the short term and their motions on January 25th only confirm this. In order to assist ‘full employment’ — which is not the key to a healthy economy² — the Fed turns on its printing presses hoping for an economic boost, while at the same time ignores sound economics and destroys real wealth.

The reason gold “jumped” is because some people realize that paper money is political money.
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(Reuters Photo)

¹ Where in the economy? We don’t often have the luxury of knowing. However, be sure that those special interests, the recipients of the “bailouts”, those favored enough to become the next “stimulus project”, these surely are often beneficiaries of our Central Bank’s “new money.”

² See: Hazlitt, Henry. “The Fetish of Full Employment.” Economics in One Lesson. New York: Harper Brothers, 1946. Print.

Kyle Ebersole stands for liberty and runs Conservative Action Alerts; he is not an economist, but uses common sense. Follow Kyle on Twitter @conservativeact.

Tagged as: Benjamin Bernanke, federal reserve, gold, inflation, january 25th federal reserve announcement, low interest, political money