Little did we know when we held our online conference last fall how prescient it would be. The conference was entitled “End Inflation and the Fed.” It featured some of the most competent libertarian and Austrian economics speakers giving their perspectives on the monetary, banking, and fiscal difficulties facing our nation.
As most everyone knows, our country is now in the throes of the biggest banking crisis since 2008. Two U.S. banks have gone under and a third is teetering. One giant Swiss bank has also gone under.
As I have recently pointed out, the Federal Reserve System — America’s central bank — is at the root of this crisis. It is clear that the Fed has been — and is — engaged in nothing more than guesswork with respect to monetary planning.
If there was anything scientific about the Fed’s monetary planning, we would never have had the big recent run-up in prices. That run-up is a direct consequence of the Fed’s “easy-money” policy, or what was called “quantitative easing,” for the past ten years, which was aggravated severely by the Fed’s enormous influx of additional money during the Covid crisis. One thing is clear in all this: The Fed never intended for the enormous upsurge in prices to occur in response to its “easy-money” policy. That is why it has now been reacting in such a strong way with its rapid and dramatic increase in interest rates.
Today, the Fed is trying to figure out whether to continue its dramatic interest-rate policy in its battle against the rising prices that its easy-money policy brought about. But the Fed now finds itself in a big jam.
If it continues raising interest rates rapidly and dramatically, it might well break more banks and, more important, possibly bring about an industry-wide banking collapse.
On the other hand, if it ceases raising interest rates, prices continue surging.
What will the Fed do?
Most analysts think that the Fed will adopt a face-saving compromise by raising interest rates by only 25 basis points, rather than the 50 or 70 basis points it would have adopted if there hadn’t been a banking crisis.
Regardless of what the Fed does, it is clear that it is groping in the dark. It’s all just guesswork. The Fed is clearly hoping for a bit of luck with respect to where it sets interest rates.
None of this should surprise us. As FFF has been pointing out since our inception in 1989, the Federal Reserve is a socialist institution in that it relies on the socialist concept of central planning to plan something as complex as the supply of money in a highly complicated and intricate economy, one involving hundreds of millions of people. (See, for example, Richard Ebeling’s articles in the February 1990 and March 1990 issues of our monthly journal Future of Freedom, entitled “Free Market Money — Instead of Political Manipulation” and On the Edge of Hyperinflation in Brazil.”)
As every libertarian and Austrian economist know, central planing produces chaos and crisis. That’s why America has experienced monetary chaos and crisis ever since the Fed was adopted in 1913, including its bringing about the 1929 stock-market crash and the succeeding Great Depression.
Friedrich Hayek characterized central planners as having a “fatal conceit”— a conceit by which the planners honestly believe that they can plan a complex part of human endeavor. That’s the mindset of the Federal Reserve’s central planners. They think that they can do this without breaking things — without producing monetary crisis and chaos. It simply cannot be done.
In the weeks ahead, we will inevitably encounter various recommendations for reforming and fixing the Federal Reserve and the banking system. They will all be defective. That’s because they purport to reform an inherently defective system. No matter what reform is adopted, it will not make America’s socialist central planning system function well. In fact, reform might even make the situation worse.
That’s why FFF has always been committed to raising people’s vision to a higher level — to one of economic liberty and monetary liberty — that is, the total separation of money and the state. Let the free market determine the concept of money. The free market, not socialism, is our heritage as Americans. It produces the best of everything. It would produce the finest monetary system in history, even better than the gold-coin, silver-coin standard called for in the Constitution that was our nation’s monetary system for more than 100 years.
To gain a good understanding of this concept of a free-market monetary system, I highly recommend the following:
1. FFF’s book Monetary Central Planning and the State by Richard Ebeling.
2. All the presentations at FFF’s online conference last fall — “End Inflation and the Fed,” which featured Richard Ebeling, Ron Paul, Kevin Dowd, Murray Sabrin, Robert Wright, Lawrence White, Philip Magness, and me.