Why the Federal Reserve is Damaging America - Part I

I read and hear a lot about how bad the Federal Reserve is for America. The cries for “Audit the Fed” continue to grow louder. Inherently I understand that government intervention always causes market distortions in the market but trying to explain how the Federal Reserve detrimentally impacts the economy at a level that the average person can understand has proved daunting.

Below is a list of observations about the market with the Federal Reserve and what would happen without the Federal Reserve. Future blog posts will expand on many of these points.

With the Federal Reserve	Without the Federal Reserve
Unconstitutional government-granted monopoly on the creation of money. They fix the cost of credit.	No monopoly. Billions of transactions determine monetary policy.
Recessions and depressions linger for years as the Fed’s market manipulation interferes with free market principles – i.e. “Too Big to Fail”, zero interest rate.	Recessions and depressions self-correct with liquidation of bankrupt companies and industries.
Arbitrarily suppressed interest rates discourages savings, hurts those on fixed income, the poor, and savers. These artificial rates result in malinvestment by sending the  wrong signal to entrepreneurs to borrow at lower rates during a time when the economy may not support their expansion.	Interest rates determined in the marketplace comprised of billions of independent, voluntary transactions between millions of producers, consumers, workers, savers, investors, entrepreneurs and even speculators would return to normalized rates and encourage and reward savings. A large supply of savings would lower the interest rates offered by banks competing to make loans. Low rates send signal to entrepreneurs to borrow and invest in expansion.
Economy-wide booms and busts	No economy-wide booms and busts. Just typical localized and/or sector-specific business fluctuations
Artificially inflated stock market characterized by stock buybacks and dividend increases instead of productivity increases.	Stock market rewarded for future growth, productivity, and innovation.
Lending is suppressed. Why loan money at artificially low rates? Instead institutions seek higher yields and take more risk than otherwise necessary by taking the cheap money from the Fed and investing it in the stock market or other riskier vehicles – the carry trade.	Savings are used to finance business expansion. Depositors restrict current consumption (i.e. save) and business expands using the savings which is loaned to them. Lower consumption turns into more savings. Those saved dollars are then loaned out.
Central planning and crony capitalism.	Free market capitalism.
An unlimited amount of fiat money can be created out of thin air. No gold standard.	Sound money. Possibly backed by gold and/or silver, both of which are scarce, limited, and cannot be created out of thin air as they must be discovered, mined, and minted. They are rare, durable, portable, and divisible.
Bailouts	Bankruptcy
Inflation resulting from the increase in the money supply.	It is very difficult to increase the supply of gold and/or silver, therefore inflation is severely limited.
The welfare and warfare state are fully funded.	Neither would be financed to the insane levels they are currently as taxes would need to be raised to pay for each instead of printing money.

Washington D.C. is Beyond Reform, Focus on Your State Elections

I have given up on the prospect that Washington, D.C. can be reformed. Since the founding of this nation, Washington has continued to grow at the direct expense of the people of the states. The founding fathers were afraid of this and developed a system of checks and balances to avoid it. Those checks and balances have failed leaving us with few options! Because of this, I believe the best use of American’s limited attention span toward politics and public policy is at the state level.

Consider the evidence against the federal government:

The executive and legislative branches are: overreaching, arrogant, waste-ridden, inefficient, unresponsive to their constituents, corrupt, controlled by special interests, obsessed with reelection, the architects of crony capitalism, irresponsible, unaccountable, out-of-control, and they break their own rules.

The judiciary: rather than interpreting the Constitution, it consistently legislates from the bench and creates constitutional rights out of thin air using their own, concocted precedence.

                   

The federal monetary authority (the Federal Reserve) is purposefully devaluing the dollar, causing inflation while leading the country into bankruptcy with their manipulation of the monetary system via perpetual zero interest rate policy and printing of dollars.

Describing the federal government as dysfunctional is being generous. 

They are willfully negligent in the exercise of their duties!

As we look ahead to the election in 2016, can you honestly say that there will be any significant differences between the two major political parties? Will a Hillary Clinton administration be materially different than a Jeb Bush administration? Even if Rand Paul were to win the presidency, we are still stuck with a corrupt and/or feckless Congress.

What’s the Solution?

The rightful remedy is for the states to unapologetically assume the role they were granted under the Constitution - that of a principal. The federal government is the subordinate agent of the states – NOT THE OTHER WAY AROUND! The states created the federal government and, presumably, the states can annul it or ignore it. 

As Ron Paul recently said, we will soon have "de facto secession." The federal government has gone too far and the American people are slowly waking up and recognizing it. The hand of the states has been forced. They must continue to nullify and ignore federal laws and regulations (over 200 bills are currently in the works) and move toward an Article V Convention of the States whereby the states bypass Congress and pass constitutional amendments.

What kind of gullible suckers are we to allow the federal government, which has a 100% failure rate, to dictate to us such things as the light bulbs and health insurance we are permitted to buy. Or the education of our children? Or our labor, environmental, drug enforcement, and gun control laws?   

This is the same federal leviathan that runs bankrupt entitlement programs such as Social Security, Medicare, and Medicaid! It operates bankrupt government-sponsored enterprises such as Fannie Mae and Freddie Mac! It funnels billions of dollars to bankrupt entities such as the USPS, Amtrak, and green energy companies! It runs the pitifully inadequate health care system at the Veteran’s Administration! It throws billions of dollars at “Too Big to Fail” financial companies!

Are we going to continue to be at the mercy of an incompetent and defective Federal Reserve whose track record, even when measured against its own mandate, is woeful. Are we going to allow them to continue to thwart efforts to open their books to a congressional audit?

Are you comfortable with leaving future generations holding the bag of an $18+ trillion national debt (over $100 trillion when you include unfunded liabilities for entitlement programs)?

James Madison said the states are “duty bound to interpose [intervene]” when the federal government goes awry. There are two obstacles to the states assuming their constitutional power. The first is the education and engagement of the general public. The majority of Americans pay more attention to the air pressure in the tires on their car than they do to politics and public policy. So we must awaken our fellow citizens from their apathy coma.

Secondly, the states must wean themselves off of the federal funding teat. On average, states receive 30% of their revenue through various forms of federal funding. Once the states are financially self-sufficient, they will no longer be susceptible to the extortion, coercion, and blackmail that the federal government relentlessly employs against them.

This country fought a revolution to rid itself of a tyrannical central power that did not represent the people. The states signed a contract (the Constitution) with the understanding that all power not specifically delegated in the contract to the federal government would reside with them. For over two hundred years, the pendulum has swung in the wrong direction as the power of the federal government has grown and that of the states has diminished.

My challenge to you is to pay close attention to your statewide elections rather than waste your energy and attention on the national elections. Support candidates in your state that understand the looming economic disaster. Support those who have read and understand the Constitution. Support those who understand states’ rights and are willing to flip off lawmakers and bureaucrats in Washington through nullification legislation and Convention of the States Applications. Support those that will go to work reducing your state's dependency on federal funds by cutting the budget, eliminating wasteful spending, and looking for opportunities to grow the states revenue base. Maybe that person is you?