deja vuLast week, Federal Reserve Chairman Janet Yellen testified before Congress for the first time since replacing Ben Bernanke at the beginning of the month. Her testimony confirmed what many of us suspected, that interventionist Keynesian policies at the Federal Reserve are well-entrenched and far from over. Mrs. Yellen practically bent over backwards to reassure Wall Street that the Fed would continue its accommodative monetary policy well into any new economic recovery. The same monetary policy that got us into this mess will remain in place until the next crisis hits.
Isn’t it amazing that the same people who failed to see the real estate bubble developing, the same people who were so confident about economic recovery that they were talking about “green shoots” five years ago, the same people who have presided over the continued destruction of the dollar’s purchasing power never suffer any repercussions for the failures they have caused?

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By Dr. Ron Paul:

They treat the people of the United States as though we were pawns in a giant chess game, one in which they always win and we the people always lose. No matter how badly they fail, they always get a blank check to do more of the same.

It is about time that the power brokers in Washington paid attention to what the Austrian economists have been saying for decades. Our economic crises are caused by central bank infusions of easy money into the banking system. This easy money distorts the structure of production and results in malinvested resources, an allocation of resources into economic bubbles and away from sectors that actually serve consumers’ needs. The only true solution to these burst bubbles is to allow the malinvested resources to be liquidated and put to use in other areas. Yet the Federal Reserve’s solution has always been to pump more money and credit into the financial system in order to keep the boom period going, and Mrs. Yellen’s proposals are no exception.

Every time the Fed engages in this loose monetary policy, it just sows the seeds for the next crisis, making the next crash even worse. Look at charts of the federal funds rate to see how the Fed has had to lower interest rates further and longer with each successive crisis. From six percent, to three percent, to one percent, and now the Fed is at zero. Some Keynesian economists have even urged central banks to drop interest rates below zero, which would mean charging people to keep money in bank accounts.

Chairman Yellen understands how ludicrous negative interest rates are, and she said as much in her question and answer period last week. But that zero lower rate means the Fed has had to resort to unusual and extraordinary measures: quantitative easing. As a result, the Fed now sits on a balance sheet equivalent to nearly 25 percent of US GDP, and is committing to continuing to purchase tens of billions more dollars of assets each month.

When will this madness stop? Sound economic growth is based on savings and investment, deferring consumption today in order to consume more in the future. Everything the Fed is doing is exactly the opposite, engaging in short-sighted policies in an attempt to spur consumption today, which will lead to a depletion of capital, a crippling of the economy, and the impoverishment of future generations. We owe it not only to ourselves, but to our children and our grandchildren, to rein in the Federal Reserve and end once and for all its misguided and destructive monetary policy.

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  1. the insanity of NIRP is already here when Tbills pay 0% right now.  It’s not what you’ll earn on your investment in this FIAT parking lot from hell.  It’s how much you won’t lose.  And that is a joke in itself. Inflation at 8%. Interest on the printed plantation script/FIAT of 3% sends your returns into reverse. How’s that working out for the middle class?
    Until the Fed and Treasury decide to steal those funds for real, particularly when IRA and 401K managers put your pension funds into these worthless securities BECAUSE THEY ARE SAFE (bad idea there)  the Ring fencing and herding of your money begins and ends with ZIRP to infinity.  Anyone in these funds is at risk of losing at least 10% a year and potentially as much as 25-100% of their investment once the looting starts in earnest.

    • @AGXIIK
       
      People used to call US Treasury paper a “risk-free return”.  I prefer Jim Grant’s description of a “return-free risk”.  One of the biggest problems is that the safety of UST paper has become so ingrained in people’s minds that they simply cannot see what we see in this.  There are a number of facets to this, as you mention.  But there is also taxation of the “gains” and at personal income tax rates instead of capital gains, which tend to be about 50% lower.  Also, there simply is no good debt out there any more.  No, none.  The world is awash in debt.  We’re drowning in it, so buying any sovereign bond is only enabling the terrible financial behavior that got us into the current mess we are in.  I’m convinced that national governments should not be allowed to borrow money.  I’m tempted to say that limited borrowing could be OK but from what we have seen there is no limiting the spending of these politicians.  They will lie, cheat, steal, scheme, plot, and perhaps even kill in order to continue spending other people’s money.  They will continue with this until either they are hurled, kicking and screaming, from the ramparts of power OR the country collapses and they simply cannot do it any more.  I favor the former over the latter, so have a personal policy of only voting for those who truly stand up for liberty in all things.  The very last things we need are more party-line voting, more spending, more debt, and a cheaper currency.
       

  2. “The same monetary policy that got us into this mess will remain in place until the next crisis hits.”
     
    Indeed it will.  It is an interesting fact that the Fed never ever sees a bubble forming.  Once it POPs!, they never even apologize for not seeing it or not averting it.  They just bubble along from one financial disaster to the next, all the while have praise for their economic and financial skill heaped upon them from the Dolts in DC.  Most of them know squat about economics and finance, so are ripe for a good song and dance routine from the Fed.
     
    “Isn’t it amazing that the same people who failed to see the real estate bubble developing, the same people who were so confident about economic recovery that they were talking about “green shoots” five years ago, the same people who have presided over the continued destruction of the dollar’s purchasing power never suffer any repercussions for the failures they have caused?”
     
    That isn’t the part of this that amazes me.  What truly amazes me is that the American people continue to allow these BS artists to continue with their routine when they should have gotten the hook that yanked them off of the stage immediately upon the onset of the Great Depression.  That they can fail so badly and so often is incredible.  During most of history, this would have earned them a very public and very gruesome death.  I am convinced that these bankers / economists need a carrot and stick system of reward and punishment.  When bad behavior goes unpunished, we can full expect to get MORE of it.  When good behavior goes unrewarded, we can expect to get LESS of that.  What is it about such a simple and obvious fact of human behavior that eludes our “leaders”?
     
    “Sound economic growth is based on savings and investment, deferring consumption today in order to consume more in the future. Everything the Fed is doing is exactly the opposite, engaging in short-sighted policies in an attempt to spur consumption today, which will lead to a depletion of capital, a crippling of the economy, and the impoverishment of future generations. We owe it not only to ourselves, but to our children and our grandchildren, to rein in the Federal Reserve and end once and for all its misguided and destructive monetary policy.”
     
    Hear, hear!  This is a nice summation of the problem presented to us by the Fed and it is sufficiently clear that everyone can understand it.
     

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