Dr. No — Or How I Learned To Stop Worrying And Love The Fed

If I had photoshop skills, I’d be putting out a picture of Ron Paul smiling up* at Ben Bernanke throwing money out of helicopters… Unfortunately, I’m not an artist. So this will have to do…

Perhaps my predictions in early 2007 are starting to come true? We’re in an election year, and our next president (whoever it is) is about to walk into a shitstorm of 1930s proportions. The next President will be forced to “do something”, and to expect that President to do something positive instead of politically-palatable-but-destructive is naive at best.

More to come when I get a chance, because my initial predictions didn’t quite account for how difficult it would be for our economy to deleverage… A lot of people don’t understand what’s actually happening, so I’m going to do my best to explain it in simple terms– and try not to get it wrong, as it’s complex enough to make my brain hurt…

* No, Ron Paul wouldn’t be smiling up at Bernanke out of respect, it would be more out of a fatalistic delirium that all of us might be facing in the near future. Ron Paul was just prescient enough to see it coming and try to warn us.

  • Jared L. Ohlinger

    The solution is easy, dissolve the entity that has created every recession and depression this country has faced, the Federal Reserve.

    I have no idea why people can’t understand that.

    Either we get rid of the Fed and the Treasury Department, and this issue goes away in a year or two. Or we can allow the Fed to continue throwing band aids on an open head wound dragging this process out for a decade.

  • MichaelB

    “The solution is easy, dissolve the entity that has created every recession and depression this country has faced, the Federal Reserve.”

    what was the feds role in the Panic of 1907?

  • Jared L. Ohlinger

    The “Panic of 1907” was due to a stock manipulation scheme to corner the market in F. Augustus Heinze’s company United Copper. It was the driving force for creating a central bank. So yes, indirectly it was caused by those that wanted to drive the country toward a central bank, which they achieved in 1913.

    The Fed is still run by the banks, so even though they were not there in name, the forces that controlled it once it was were already running the country.

  • Moghopper

    OK, Jared, when does the pitch for your website that sells gold come?

    Tell us again about the Fed and the Panic of 1837.

    Sheesh. Go back to hawking sandwiches for Subway already.

  • Jared L. Ohlinger

    I wasn’t aware I had a site that sells gold, but sure, whatever.

    If you want to bury your head in the sand and pretend that giving more money to the people that got us in this mess in the first place is a good idea knock yourself out.

    It doesn’t change the fact that if this bailout goes through there is no more America.

  • http://thelibertypapers.org/ Brad Warbiany

    Of course the fed had nothing to do with the panic of 1837.

    But remember one thing. This sort of boom/bust cycle is part of the natural order of things, whether banking or otherwise. The problem occurs when people put so much faith in the government’s ability to stop it that the institutions honestly become “too large to fail”.

    Banks sometimes fail, but creating such a governmental insurance backstop for them (which is what the Fed does) allows them to become so large that their failures endanger much wider segments of the economy.

    The Fed hasn’t stopped banking panics from occurring, and it’s arguable that their policies in the early 1930’s turned what would have been a panic into a Depression. I think we’re seeing the same thing now. We should see a sharp sell-off of assets during the de-leveraging process, but the Fed & Treasury will be pressing to ensure that happens so slowly that the economy can’t work out the pain and start a recovery.

  • http://www.orderhotlunch.com Jeff Molby

    To those pointing to pre-1913 problems as if they absolve the Fed:

    I think you’re forgetting about the other flaw in our banking system: the fractional reserve. If banks actually had to keep their promises in regards to demand deposits, there would be no such thing as a run on a bank.

    Even if you think fractional reserves are a good thing, you should at least advocate that market forces determine the appropriate reserve level instead of the current statutory minimum.