Freedom From the Fed Fix

by Dave

Economic Beat –

Columbia University economist and non-Austrian Jeffrey Sachs has recently written: “The U.S. crisis was actually made by the Fed…. Monetary expansion generally makes it easier to borrow, and lowers the cost of doing so, throughout the economy…. What was distinctive this time was the new borrowing was concentrated in housing…. The Fed, under Greenspan’s leadership, stood by as the credit boom gathered steam, barreling toward a subsequent crash.”

To be fair, economist Sachs seems to be implying that the solution is to be found in better management of the Fed, rather than outright abolition. On the other hand, since Sachs is indicting the reputed “maestro” of Fed chairmen, Alan Greenspan himself, the burden is surely on Sachs to prove the point. Should we really stake the future of the economy on the hope that wise men even wiser than Greenspan will someday be our central bankers?

The abolition of the central bank is just a major first step, since, as mentioned, the artificial expansion of money and credit can be carried on by other means. But it’s a necessary first step. There are better and worse ways to manage the Federal Reserve, but most are a matter of luck and hindsight. As economist Marc Faber has written, “When…the public…finally realizes that central bankers are no wiser than the central planners of former communist regimes, the tide will turn and monetary reform will come to the fore…. market forces [will] drive economic activity, and not some kind of central planner….”