The “Fed” has Failed-What Now?

Dr Ron Paul has insisted for Decades that liberal lending policies will eventually fail-give credit where credit is due, its the American Way 

Is it time for the Federal Government to Stop the Fed?

There is no question at this point that the Federal Reserve of the United States has failed. If there is a question it is only in the minds of those few who have profited from the actions of the Fed over the past twelve years. The majority of others should have no questions as to the failure of Federal Reserve economic policies.

The facts are these, as they are now: the U.S. economy is not soaring independently of the Fed, there is no widespread world economic resurgence, there is no real distribution of capital wealth among the ordinary people of the nation. Yes jobs have been created, but the manner and inherent value of those jobs is still very much in question. As we have said elsewhere, jobs can be created any time assuming the capital is there, but are they of long lasting value?

The tremendous drop in oil prices should serve as a stark reminder that things are not well in the credit bubble-lottery- economy. Had the economy actually been on the rise, there would have been absolutely no possibility of a fifty percent drop in oil prices in less than a year! Commodity prices drop significantly if and only if the economy is in serious trouble.

Meanwhile securities such as stocks and bonds have risen to ridiculous levels, completely devoid of any real economic progress. This may be fine and dandy for those few benefiting but again for the general economy it will stand as a tremendous obstacle to any recovery in the long run. You see as these securities rise in value, they become a great liability. Should they then begin to drop,  the second the Federal Reserve withdraws its artificial support, we could be looking at tens if not hundreds of trillions of dollars disappearing from the wealth of the world. This money is by its nature taken from the ordinary masses, and must, even from the viewpoint of the most sanguine capital theory, be returned to circulation. Should this re-circulation or redistribution to the masses fail to materialize for any reason, the consequences will be dire and decades of depression may follow.

Moreover, the rest of the economy of the world, or most of it,  has also begun to adopt  US Federal Reserve policies and is now busy devaluing its own currencies. This action tends to make the dollar stronger relative to those currencies, and therefore American goods become more expensive. The more expensive dollar makes it impossible for the United States to export at a fair balance.

The United States is perhaps the most deeply indebted nation on Earth, it can no longer afford negative trade balances-which it has sustained for decades.  We cannot see any real “blossoming” of the US economy without some adjustment in trade balance. At some point in time, the levy will break and the flood will begin.

Yet, the Federal Reserve is still stuck in a position that will only worsen the situation. If it should raise rates, the dollar discrepancies will grow worse and the trade balance will become ever more a liability. Should the Federal Reserve withdraw and continue on its weak dollar policy instead, the inflation of the general economy will continue, and the asset liabilities will become even greater. In the end, the only thing we can conclude  is that these policies are at the end of their rope. The Federal Reserve policies cannot resuscitate the economy as promised and will only increase the possibility of collapse if they are continued.

The simple truth  is that the debts are staggering, and any interest rate hike will only make those debts greater and the demand for repayment will increase.

What’s to be done?

The fact is that the Fed is not going to throw in the towel of defeat any time soon. That’s obvious if we take into account Janet Yellen’s recent lecture to the U.S. Congress on the need for the “independence” of the Fed. This basically means the Fed will continue being the “Fed” until hell freezes over. The Federal Reserve hierarchy will take no corrective measures on their own since they are in no real position to do so. But where does that leave the majority of people?

As we have begun to see overseas, as well as here in the United States to a lesser degree so far, the situation is starting to become dangerous. People are starting to realize that it’s not likely to be a happy hour party, but a funeral dirge for the economy if things continue to go along the present path. The populations of Greece, Portugal, Spain, Italy, Ireland, France and even Germany itself are starting to show signs of great impatience and anger directed at the Federal Banks of the world,  and this resistance will likely continue to spread throughout the world-and possibly even China. There is growing impatience with the idea that a few must prosper while the rest must languish waiting for the Sun to come out in the dark abodes of economic “Austerity”.

The Democrats

The Democrats in the U.S. congress are at present far more concerned with maintaining their party than to risk any major “change” in course or practice. They seem not inclined to do anything to begin correcting the situation at the Federal Reserve. They know, as we know that any correction will be very painful to their own political aspirations, and will need to be atoned for at the polls. They seemed very little inclined to atone for their actions in the past, and no matter the candidate, are not very likely to take any corrective action in the future. It is also true that those who sponsor the party are not inclined to any Obama promised “change” at the hands of a future candidate.

The Mainstream Republicans

The Mainstream Republicans, or what we like to think of as the GOP are more attuned to their own needs as a party and are little aware, or little concerned with the growing danger of Federal Reserve policies to the nation, and to world stability. They are in fact, under George W. Bush, the chief cause of most of the economic degeneration we are witnessing, and it is very unlikely that anyone from their party is going to take any serious corrective actions concerning the Federal Reserve. Their sponsors also, even more well integrated to the party’s internal functions than are the democratic party’s sponsors,  will not be inclined to see any real change to the Federal Reserve’s credit policies-which would, no doubt, affect them adversely.

Unfortunately, the truth is that a political “party” is little more than the will of those who sponsor it, and those who sponsor either of these two parties are not likely to want to see the financial rug pulled from under their feet. Any corrections at the Federal Reserve are likely to shift a great deal of power and money.

The Conservatives

So what is to be done? Certain elements of the Conservative party of the United States have for a long time complained about the policies of the Federal Reserve. They have for some time insisted that credit is not the basis on which to place the economic foundations of a civilization. Their arguments have been intricate, and imbued with conviction. They have argued time and again that debt based economies will usually come to grief and be unable to sustain themselves. Chief among these has been former congressman Dr. Ron Paul, father of possible presidential candidate Senator Rand Paul from Kentucky- who is also a licensed physician.

He has argued time and again that there is no way to justify endless credit and that by issuing endless credit the underlying value of the economy is forever compromised. Though his message has been little heeded by the mainstream Republican party, much less by the socialist leaning Democratic party, there is now quite a bit of evidence that his initial judgment was correct. In effect, risks must be taken with great care not to afflict others with one’s particular errors in judgment or infirmities-or unbounded desire for licentious living.

The reality is that this particular segment of the Conservative party has from the start seen the danger of endlessly liberal credit and has sought to limit the power of the Federal Reserve. They are the only major political party in the United States that had the guts to stand up to the Federal Reserve, and these are the most likely to take any action concerning the possibility of limiting the Federal Reserve.

What is clear at this point, is that the Federal Reserve policies must begin a process of unwinding. That process of unwinding will have to be slow and careful-and not nihilistic since the Federal Reserve is still necessary, but there is little doubt that some kind of redirection and limitation must take place. To continue with these endless liberal lending policies leaves the entire world open to the risk of ultimate economic collapse that will only end with violence and disorganization. We have not seen the pot of gold at the end of the rainbow as originally promised with these loose lending policies, and as things measure up now, to the best of our abilities using our limited calculus, we can see little hope of the Sun shining in the next ten years. Rather everything points to a shrinking economy overburdened with huge debts that cannot be repaid or redistributed to the masses from whom they are in fact borrowed. Redistribution of wealth cannot take place through the capital markets system as it stands today. Either the capital market system will change fundamentally, or as we have seen in Europe, a new Socialist resurgence will overtake it.

Unfortunately socialist redistribution of wealth will not really solve the problem-if it did, we might well be for it-but most likely any socialist redistribution will exacerbate the situation-as more money is printed in order to redistribute it without disturbing the powerful political sponsors behind most political parties no matter their location or particular orientation. It is however true that some level of Social Redistribution must remain since that tends to stabilize the masses-as well as to keep the “Organism” alive- and this is absolutely necessary for a stable society. The very last thing we would want is social instability since that would be the first door to open in a scenario of possible total destruction.

The conservatives are the only group still fighting for the strict capital system, and as things are now, under this particular system, they are the only party in a position to bring change about, quickly, before it’s too late.

Again the process of unwinding the liberal lending policies must be slow, and careful, general, and long term. The preservation of wealth is crucial.