The Fed: America’s Boom & Bust Machine
The Federal Reserve Board (“The Fed”), created in 1913, is the U.S. government’s preeminent central-planning vehicle. It exerts control over the supply of money in the economy and regulates almost all aspects of all financial markets. It is essentially a legalized counterfeiting operation and a financial central-planning bureaucracy.
The Fed increases the supply of money in circulation by purchasing billions of dollars of government bonds (“quantitative easing”). It also regulates the “fractional reserve” banking system, whereby banks are required to maintain in reserve only tiny percentages of the loans they make. This percentage is called the “reserve ratio.” At a reserve ratio of say, two percent, a bank with $10 million in reserves can then lend 50 times that amount, or $500 million.
When banks make too many bad loans, the Fed, with help of the U.S. Treasury, frequently bails them out. This is horribly destructive to the American free-market system, which is supposed to be a profit-and-loss system. Profits tell a business that it is serving its customers well; losses say the opposite. With Fed-orchestrated bailouts, however, profits are private but losses are “public,” or paid for by taxpayers one way or another. This encourages even more of the reckless risk-taking that led to the losses in the first place, something that economists call a “moral hazard problem.”
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