The Federal Reserve should be abolished

Conclusion: The Federal Reserve punishes innocent people, rewards irresponsibility, and distorts markets. Thus, the Federal Reserve should be abolished due to immorality of its mission and results. Federal Reserve"s Mission The mission statement from the Federal Reserve"s website, The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded. The Fed has a government mandated monopoly on money distribution and creation of money from nothing, money created without even a paper requirement. In the mission statement, starting with "to provide the nation " a monetary and financial system", this is simply not a legitimate role of government. A government can only perform as an extension of a person. A person cannot mandate non-consenting persons the use of a monetary or financial system. People have a natural right to use anything for currency that both parties in a transaction agree to, along with banks should be able to denominate an account in any currency that can be agreed upon. Yet, both are in violation of US laws. Now, breaking the mission statement into pieces about what the Fed roles in the nation"s monetary and financial system: 1) "Safer" How can the Fed provide America with a safer financial system? This is a reference to the 1907 panic, where major banks in New York and Chicago were allowed by the government to suspend specie payments, thus causing further deterioration of confidence in the banking system. In a sound money system species payments are key to maintaining confidence, as long as people can receive gold for their money confident will remain. Part of the Feds creation is to take control of money issuance from banks, transferring that ability to the Fed. Now, when bankers make mistakes, their first defense is that all regulation have been complied with, giving bankers the ability to hide behind regulators. Setting bank reserve requirements are also thought of as creating safety. The highest reserve requirement for a bank is only 10%! That means if a person deposits $100 in a bank, $90 dollars are available for leading, this puts a claim on the same property by two people. With thousands of customers and most money only being number on a computer the accounting can work. For those situations when the accounting is troublesome, the Fed is the lender of last resort. Looking at factional reserve banking in closer detail, a deposit of $100 creates total assets of $190, on just one deposit. If a non-banker did the same action, it would lead to counterfeiting or fraud charges. Also, fractional reserve banking inflates the money supply. 2) "More Flexible" " Why would a financial system need flexibility? Flexibility is needed for monetary inflation. Every banker loves in inflation! Bankers have always attempted to inflate currencies, mainly through debasement (creating coinage with less gold or silver content), but mostly by just printing more currency and stating that there was gold backing that currency. Again, the Panic of 1907 was caused by lack of gold backing of currency, or as bankers would say, a lack of flexibility. Today, that flexibility is demonstrated by increasing the money supply with quantitative easing, or QE. From Investopedia, "Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity", that sounds harmless. This flooding of capital inflates the money supply, causing every current dollar to have less value. Inflation is big profits for bankers and the first users (most connected to bankers, the rich) of this newly created money. Everyone else just accepts inflation as the way it is. Inflation as a term has been deliberately misused to confuse. Inflation of a money supply is different than inflation of increase of the level of prices, which is only compounded by methods the Fed uses to measure inflation. The St Louis Fed maintain a database on the Fed current money supply then uses the Consumer Price Index (a problematic index that favors government, http://www.forbes.com...) compiled by BLS to measure the nation"s price level. Using inflation to describe both terms is inaccurate. For this point on inflation will only be used in terms of the money supply, with price level being self-explanatory. With these terms separated, monetary inflation needs a method of measurement so that the effects can be calculated since the value of each dollar is reduced with the creation of another dollar. Thus, the St Louis Fed"s money supply data is the monetary could be used to calculate an inflation rate. 3) "More Stable" What is a stable monetary system? Most would state a system with continuous growth with no peaks or troughs, just slow continuous growth. For stability to be demonstrated a measure must be designed, that measure is Gross Domestic Product (GDP). GDP is the value of all final goods and services purchased in America during a given time period. A slow growing GDP is desired by those in governmental power, yet means nothing to a business"s bottom line. GDP also requires goods to change hands to be measured, which encourages Fed policies to get consumption up, and saving down, lowering real wealth of people. Money for most of history was defined as "a store of value". The store of value is still in antiquated text books, but not in the minds of elite intellectuals or politicians. P1) Federal Reserve punishes innocent people Starting with a hypothetical business, the leadership has a plan where they see future prices of input, transformation process and predicted sales volume to be at a level that competitors will be outpaced. This company is set to provide voluntary consumers a desired produce, therefore making a mountain of profits. This plan takes work better than expected and other companies in other industries have done the same. Then, in comes the Fed! Statements that includes words like "overheating", "inflation", "rising prices", and "low unemployment", are starting to be used. The Fed must take action to slow down this economic activity. Thus, the Fed raises discount interest rate, with an expectation of slowing this successful business down. This successful business has been selected for punishment for serving their fellow man too well This is extremely immoral. Next hypothetical, a soon to retire couple that has worked and saved their entire life, they have a large retirement fund saved. They have calculated that at today"s prices they should be able to live for many years. The problem is that the couple does not trust banks and stores their money in an alternate safe place. Others throughout the country also are doing the same thing, which is lowering GDP, since too many people are saving or hording cash. In comes the Fed! The Fed lowers interest rates to discourage people from saving money in banks, and uses QE to inflate the currency thus reduces the value of every dollar that the innocent couple has stored in a safe place. Therefore, this couple is financially punished for doing nothing wrong. This is extremely immoral. Using monetary policy to favor the most politically connected, which is the financial industry, and punishes the rest of a country"s citizens, can only be immoral. P2) Federal Reserve rewards irresponsible Back to the first hypothetical, many competitors to the success business react poorly to the higher interest rates. These poorly ran businesses are now laying off people and businesses in other fields are doing the same. In comes the Fed! The Fed now lowers interest rates to save the jobs in these poorly ran businesses. This too is extremely immoral. The second hypothetical, QE has been successful, and influenced this innocent couple to invest their money in the financial system. Now, rich bankers have this money and only need to have 10% in reserve creating a situation where two people have a claim on the same property. This is another example extreme immorality. P3) Federal Reserve distorts markets By not letting markets set a natural interest rate, based on market forces the market for money is distorted. This is only a small part, the continued devaluation of US money effects every market. When the value of currency is continually decreasing people must put wealth at risk just to maintain their current wealth. This motivates people to take more risks than they normally would accept. If a person could store money in a mattress knowing that these dollars would still have the same value in the future, financial markets would be much different. Forcing people onto more risk than they desire is extremely immoral. P4) Macroeconomics should be treated as astrology! If astronomy is a science which is the studies of celestial objects, and Astrology a pseudo-science based on a premise that there is a relationship between astronomical phenomena and events in the human world, therefore macroeconomics is the astrology of microeconomics. Get a room full of macro economist, give them moon cyclic and Jupiter red spot data, they will have a theory on how they are correlated and the policy the Fed needs to enact to stabilize the correlation. Measures like GDP, CPI, and Unemployment, are meaningless. The decisions that affect a person"s life should be made by that person, not some distance bureaucrat attempting to move a meaningless number. Government"s role is to protect negative rights not to ensure a stable economy. By insuring stability, innocent people are be punished.