When a monetary policy measures its success by how much economic devastation it is producing, that’s a good sign that that is one malignant, dysfunctional system.
But that is precisely what the Federal Reserve is doing with its policy of rapid, dramatic interest-rate increases. It measures the success of its program by how many people and businesses, especially in the housing industry, it is driving into bankruptcy. The more, the better. So long as people and businesses are doing well, the Fed will continue raising interest rates until it can succeed in putting more people and more businesses down.
The quirk in the Fed’s policy is that this time around, the Fed’s “tightening” policy is adversely impacting the banking industry. The Federal Reserve consists of bankers. It’s one thing when building contractors go out of business or people default on their home mortgages. No big deal as far as the Fed is concerned. That’s a sign that the Fed’s policies are working. It’s quite another thing when the Fed’s banking cohorts are being sent into bankruptcy. That’s when the Fed has to adjust its policies to help out its banking buddies.
The Fed justifies this malignant, dysfunctional policy by citing the need to fight “inflation,” by which it means rising prices in society. But what the Fed is loathe to acknowledge is that it itself is the cause of the rising prices through its inflationary monetary policy.
After the economic crash in 2008, the Fed steadfastly, year after year, maintained an inflationary monetary policy, which was manifested by the Fed’s artificially low interest rates. That “easy-money” policy was called “Quantitative Easing.” The Fed’s inflationary increase in the money supply for some 14 years ultimately set the stage for rapidly rising prices of most everything.
While officials predictably blamed private businesses for raising their prices, the fact is that the rising prices were simply reflecting the lower value of money, owing to the Fed’s 14-year policy of monetary debauchery. When you flood the market with newly printed money for more than a decade, its value in the marketplace is ultimately going to drop, which is reflected by the higher prices of the things that money buys.
While it might be tempting to blame all this on mismanagement at the Fed, that’s simply not the case. The fact is that the entire central-banking system is an inherently defective system. As such, no one, not even the most brilliant monetary experts, can ever make it work.
The Federal Reserve is based on the socialist principle of central planning. Fed managers purport to plan an extremely complex thing like money in a very intricate economy involving hundreds of millions of people. It simply cannot be done, at least not without a lot of monetary and economic chaos.
No matter how smart they might be, the Fed managers obviously do not know how to centrally plan. If they did, there wouldn’t have been the rapid rise of prices and the need for a concomitant rapid and dramatic Fed-induced rise in interest rates. If they knew what they were doing, there would not be the constant cycle of destructive booms and busts and constant decrease in the value of the dollar that we have seen since the Fed’s establishment in 1913.
As we are seeing once again, it’s all a guessing game. The Fed clearly has no idea how much to raise interest rates and for how long to continue raising interest rates. Each month, it examines how many people and businesses have been sent into bankruptcy and decides accordingly.
Friedrich Hayek perfectly described the mindset of the central planner as one of “fatal conceit,” a mindset that causes a planner to think that he actually can plan something as intricate and complex as the quantity of money. Ludwig von Mises called the results of central planning “planned chaos,” a perfect term to describe the results of monetary central planning.
There is but one solution to all this needless chaos, crisis, and artificially induced destruction. That solution is the free market—the separation of money and the state, or what Hayek called the “denationalization of money.” The free market produces the best of everything. It would produce the best monetary system in history. Repeal legal-tender laws, abolish monetary socialism, and end all state involvement in money. Very quickly America would lead the world in establishing the best and soundest monetary system in history, one founded on the principles of economic liberty and free markets.