Since its founding in 1913, the unelected central planning bureaucrats at the Federal Reserve have been given the incredible privilege of legally creating money out of thin air, which mere mortals like us are not allowed to do. They have also been given the tremendous responsibility of maintaining (1) maximum employment, (2) a stable price level, and (3) low interest rates.
How have they done so far?
Since 1913, the bureaucrats at the Fed have helped cause
- over 20 percent price inflation by printing money for World War I
- the depression in the early 1920s, with over 15 percent price deflation
- the Great Depression of the 1930s, with 25 percent unemployment and over a 10 percent collapse in the gross domestic product (GDP) of the United States
- the “stagflation” of the 1970s, with double-digit inflation and interest rates
- the housing bubble in the first decade of the twenty-first century
- the Great Recession of 2008–9
- a 40 percent increase in the money supply in response to covid
- aggressive interest rate hikes over the past year, which will likely cause the twenty-first recession since the Fed was founded
Of course, there were boom-and-bust business cycles before the Fed was created, due to government laws allowing fractional reserve banks to create money out of thin air, as well as various government interventions in money and banking.
However, we are told the Fed was created to help smooth out the business cycle and create a more stable and prosperous economy.
Below, I review some key economic data before and after the Fed was created to see five important ways the Fed has made the economy worse than it would have been otherwise.
Unemployment Became Much Higher
Unfortunately, unemployment data is not available for most of the nineteenth century, but what data is available shows that unemployment was generally very low since everyone who wanted to work could get a job if they were willing to accept market wages.
There were typically no legal restrictions then that prohibited voluntary work transactions. Thus, wages were allowed to fluctuate according to supply and demand, just like any other price on the free market, which generally led to full employment.
The chart below shows US unemployment rates from 1890 to 1988. The key takeaway is that before the Fed was created, unemployment never reached the incredibly high levels seen during the Great Depression of the 1930s, which occurred more than seventeen years after the Fed was created to “smooth out” the business cycle. Let’s also not forget that unemployment rose to 10 percent or more during the Great Recession of 2008–9 and the covid panic of 2020.
Figure 1: Unemployed workers and unemployment rate, United States, 1890–1988
Inflation Has Been Much Higher
Inflation is where the Fed’s track record of failure is most obvious.
The chart below shows the US Consumer Price Index of inflation from 1775 to 2012. Outside of brief inflationary spikes driven by money printing to fund wars, inflation was virtually nonexistent prior to the creation of the Fed in 1913. Since then, inflation has skyrocketed, particularly after all ties between the US dollar and gold were severed in 1971. As a result of this inflation due to Fed money creation, the dollar has lost 97 percent of its value since 1913.
Figure 2: Consumer Price Index, United States, 1775–2012 (level, 1775 = 1)
Interest Rates Became Much Higher
The chart below shows US long-term interest rates from 1790 to 2011. While interest rates have always been volatile before the Fed, they never reached the all-time high levels they reached in the early 1980s. Those high interest rates were the market’s reaction to the double-digit inflation of the 1970s caused by the Fed’s aggressive money creation.
Figure 3: Long-term interest rates, United States, 1790–2011
Economic Growth Has Been Slower
While it is hard to compare the economy in different centuries, the fact is that economic growth was higher before the Fed was created than after. The chart below shows real GDP growth from 1800 to 2020. Growth was higher from 1800 until the Fed was created in 1913, as shown by the steeper slope of real GDP growth before 1913 as compared to after 1913.
Figure 4: Real GDP in 2012 dollars, United States, 1800–2020
During this time of unprecedented economic freedom (except for the obvious evils of slavery) and minimal taxation, the US went from being an economic backwater to perhaps the wealthiest country in the history of the world by 1913.
While other government economic interventions and taxation have contributed to slower growth since 1913, the Fed shares a good deal of the blame. The Fed contributes to slower economic growth by helping cause the boom-and-bust business cycle, which causes the waste of scarce resources on bad investments, lowering worker productivity and real wage growth below what it would have been otherwise.
Government Deficits and Debt Have Skyrocketed
By creating money out of thin air to buy the US government’s debt, the Fed enables the federal government to spend much more than it takes in with taxes.
The charts below show US government deficits and debt as a percentage of GDP since 1857. Prior to the Fed’s creation in 1913, sizable budget deficits only occurred during wars such as the Civil War. There were budget surpluses (yes, surpluses!) in most of the other years.
However, since the Fed was created, budget deficits have been the rule, reaching as high as 30 percent of GDP during World War II and 15 percent during the covid panic. Deficits are currently 5.4 percent of GDP. Before 1913, that level was only exceeded during the Civil War.
As a result of all this deficit spending, US debt to GDP has skyrocketed since the Fed was created. Debt to GDP rose to 30 percent during the Civil War, before falling back toward 0 percent before World War I. It has been over 30 percent for most of the years since 1913, even exceeding 112 percent during World War II. Publicly held debt to GDP is currently at 93 percent and rising.
Figure 5: US government budget deficits and surpluses as well as debt held by the public (percentage of GDP), 1857–2023 and projections to 2053
Conclusion
Along with the Soviet Union, the Fed has proven that central planning of the economy by a small group of government bureaucrats does not work.
The fact is that the Fed was not created to help the economy. It was created by bankers to help fractional reserve banks create even more money out of thin air and bail them out when they get in trouble.
Money and interest rates are the lifeblood of our economic system, and they provide key signals for consumers and businesses. By constantly manipulating both the money supply and interest rates in the belief that they know more than millions of people, the Fed creates tremendous economic instability, which wastes scarce resources and lowers living standards, particularly for the poorest among us.
Money is just a medium of exchange to make life easier and more productive than barter. The supply of money we have now gets that job done. There is no need to change the money supply.
With 100 percent bank reserves, we would not have to worry about bank runs, a decline in the money supply like in the 1930s, inflation, and the boom-and-bust business cycle. We also wouldn’t need government bureaucrats like Jay Powell pretending they can centrally plan the economy.
If the economy were ever set free of the constant money and interest rate manipulation of the Fed and fractional reserve banks, it would lead to unprecedented economic stability and prosperity.
About the Author
Jon Wolfenbarger is Founder and CEO of Bull And Bear Profits, an investment website. Send him email. Article cross-posted from Mises.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
Let’s just drop all the parsing and keep it simple:
LAEL BRAINARD, the vice chairperson of the Fed is a WEF member and pro–CCP!
Got it????
(Yet not a single mention of this in this article???? Frigging ever wonder why???)