HuffPo’s 11 Myths About The Federal Reserve Refuted
Upcoming SlideShare
Loading in...5

HuffPo’s 11 Myths About The Federal Reserve Refuted



The other day the Huffington Post ran an article by a Bonnie Kavoussi called “11 Lies About the ...

The other day the Huffington Post ran an article by a Bonnie Kavoussi called “11 Lies About the
Federal Reserve.” And you’ll never guess: these aren’t lies or myths spread in the financial press
by Fed apologists



Total Views
Views on SlideShare
Embed Views



1 Embed 66 66



Upload Details

Uploaded via as Adobe PDF

Usage Rights

CC Attribution-NonCommercial LicenseCC Attribution-NonCommercial License

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
Post Comment
Edit your comment

HuffPo’s 11 Myths About The Federal Reserve Refuted HuffPo’s 11 Myths About The Federal Reserve Refuted Document Transcript

  • HuffPo’s 11 Myths About The FederalReserve RefutedTom Woods and Bob Murphylibertyclassroom.comOctober 9, 2012The other day the Huffington Post ran an article by a Bonnie Kavoussi called “11 Lies About theFederal Reserve.” And you’ll never guess: these aren’t lies or myths spread in the financial pressby Fed apologists. These are “lies” being told by you and me, opponents of the Fed. BonnieKavoussi calls us “Fed-haters.” So she, a Fed-lover, is at pains to correct these allegedmisconceptions. She must stop us stupid ingrates from poisoning our countrymen’s minds againstthis benevolent array of experts innocently pursuing economic stability.Here are the 11 so-called lies (she calls them “myths” in the actual rendering), and our responses.HuffPo’s Myth #1: “The Fed actually prints money.”She leads off with this? As if this is some big discovery that will refute the end-the-Fed people? Whenwe talk about Fed money-printing, we are speaking in shorthand. We’re pretty certain someone likeRon Paul knows the Fed doesn’t actually print money. But he, along with pretty much the wholefinancial world, speaks of the Fed as printing money. You know why? Because it’s a teensy bit moreconvenient than saying, “We need the Fed to credit some banks’ accounts with increased balances,which it does by means of a computer, though if these balances are lent out and the borrowers prefer touse some of this lent money as cash, the Treasury will go ahead and print the cash.”HuffPo’s Myth #2: “The Federal Reserve is spending money wastefully.”You may think the Federal Reserve is throwing around money like crazy, just like the federalgovernment. But you’re wrong! As Kavoussi explains, the Fed doesn’t spend money like the federalgovernment does; it creates money! That’s just totally different! And so we read, “Both CNN anchorErin Burnett and Republican vice presidential nominee Paul Ryan have compared the Federal Reserve’s
  • quantitative easing to government spending. But theFederal Reserve actually has created new money byexpanding its balance sheet.”She then points out that hey, the Fed earned a profit of$77.4 billion last year. We are supposed to be impressed.But if you can create money out of thin air and buy bondswith it, and then earn interest on those bonds, wouldn’t itbe pretty hard to lose money? (But they just might, ifinterest rates should spike.)HuffPo’s Myth #3: “The Fed is causinghyperinflation.”Is it just us, or does Bonnie Kavoussi word thingsawkwardly? Do you know of anyone who says the Fed iscausing – as in present progressive tense —hyperinflation?Kavoussi then goes on to tell us that the CPI is showing low price inflation — again, as if she’sreporting some extraordinary revelation that will put all Fed critics to shame. There is no hyperinflationbecause the banks are holding the newly created money as excess reserves with the Fed. If the banksbegin lending and the money multiplier is enacted, an inflationary spiral could easily occur — trillionsof dollars of high-powered money would expand via the fractional-reserve banking system into tens oftrillions of dollars. The only way for the government to stay ahead of the curve would be for the Fed tokeep creating boatloads of new money — which is how hyperinflation happens, after all. If that wereto happen, we rather doubt Kavoussi would want to come tell us how the CPI is doing. HuffPo’s Myth #4: “The amount of cash available has grown tremendously.” “Some Federal Reserve critics claim that the Fed has devalued the U.S. dollar through a massive expansion of the amount of currency in circulation,” says Kavoussi. “But not only is inflation low; currency growth also has not really changed since the Fed started its stimulus measures, as noted by Business Insider’s Joe Weisenthal.” This looks like another silly gotcha with definitions, like the “printing money” canard. The graph below shows that the currency component of M1 hasn’t shot up like a rocket, it’s true; but M1 itself (which consists of not just physical paper but also checking account deposits) has indeed risen sharply, notwithstanding the insights of
  • Business Insider’s Joe Weisenthal.HuffPo’s Myth #5: “The gold standard would make prices more stable.”Kavoussi writes, “Rep. Ron Paul (R-Tex.) has claimed that bringing back the gold standard wouldmake prices more stable. But prices actually were much less stable under the gold standard than theyare today, as The Atlantic’s Matthew O’Brien and Business Insider’s Joe Weisenthal have noted.”Does our critic even read the things she links to? Her two authors’ blog posts depict a very brief periodin the twentieth century, after the classical gold standard had already given way to the gold exchangestandard. What is that supposed to prove?So against Bonnie Kavoussi’s two blog posts that examine the gold exchange standard and only for aperiod of about 15 years at that, all we have in reply is only the most meticulous study of gold and itspurchasing power ever written, Roy Jastram’s The Golden Constant: The English and AmericanExperience 1560-2007, which finds gold to be extraordinarily stable over four and a half centuries.Even John Kenneth Galbraith, not exactly gold’s biggest fan, conceded that once someone had gold,there was little uncertainty about what he would be able to get with it. “In the last [19th] century in theindustrial countries there was much uncertainty as to hether a man could get money but very little as towhat it would do for him once he had it. In this [20th] century the problem of getting money, though itremains considerable, has diminished. In its place has come a new uncertainty as to what money,however acquired and accumulated, will be worth. Once, to have an income reliably denominated inmoney was thought…to be very comfortable. Of late, to have a fixed income is to be thought liable toimpoverishment that may not be slow. What has happened to money?”Of course, gold standard advocates, at least in the Austrian tradition, are not fixated on price stability inthe first place.HuffPo’s Myth #6: “The Fed is causing food and gas prices to rise.”
  • This can’t be, Kavoussi says,since some sources deny it.Bob Murphy testified beforeCongress on this very issue.He thinks the Fed does play arole. Where is the flaw in hisreasoning?HuffPo’s Myth #7:“Quantitative easing hasnot helped job growth.”How could we think such athing? Why, we should besatisfied to know, as BonnieKavoussi assures us, that “theFed’s quantitative easingmeasures actually have savedor created more than 2 million jobs, according to the Fed’s economists.” Gee, the Fed’s economiststhink the Fed contributes to job growth? How about that! On the same grounds, we might say there wasno housing bubble in 2005 and that the fundamentals of real estate were sound — after all, we couldfind a whole bunch of “Fed economists” who were saying just that.In fact, these models build in the very assumptions about purchases helping the economy that they thenspit out, just like with the ex post “analysis” of the Obama stimulus package. No matter what numbersone fed into such models, it would be impossible for them to say that QE (or the Obama stimulus)hindered economic growth; the worst they would show is a build-up of price inflation once “fullemployment” had been achieved.HuffPo’s Myth #8: “Tying the U.S. dollar to commodities would solve everything.”Whenever you hear a mocking writer like Bonnie Kavoussi say something like, “My opponents think Xwould solve everything,” you can be sure her opponents have said no such thing. Why, as a matter ofsimple courtesy, could she not simply have described this alleged myth as, “Tying the U.S. dollar to commodities would improve the American monetary system”? Because that might sound reasonable, and it’s Bonnie Kavoussi’s job to make her opponents sound like troglodytes. That’s all we have to say about this myth, though, since we are not interested in tying the dollar to a basket of commodities. Here is our preferred monetary reform. HuffPo’s Myth #9: “Ending the Fed would make the financial system more stable.” Here’s Bonnie Kavoussi: “Rep. Ron Paul (R-Tex.) claims that ending the Federal Reserve and returning to the gold
  • standard would make the U.S. financial system more stable. But the U.S. economy actuallyexperienced longer and more frequent financial crises and recessions during the 19th century, when theU.S. was using the gold standard and did not have the Fed.”Categorically false. As wrong as wrong can be.First, an excerpt from the 2011 Tom Woods book Rollback, whose chapter on the Fed spends some timeon this claim. (We omit the notes here, but thanks go to George Selgin and Peter Klein for help withsources.) When people raise questions about the utility of the Fed, they are usually lectured about how volatile the economy used to be and how much better it is now, thanks to the wise oversight of our central bank. Recent research has thrown cold water on this claim. Christina Romer finds that the numbers and dating used by the National Bureau of Economic Research (NBER, the largest economics research organization in the United States, founded in 1920) exaggerate both the number and the length of economic downturns prior to the creation of the Fed. In so doing, the NBER likewise overestimates the Fed’s contribution to economic stability. Recessions were in fact not more frequent in the pre-Fed than the post-Fed period. But let’s be real sports about it, and compare only the post-World War II period to the pre- Fed period, thereby excluding the Great Depression from the Fed’s record. In that case, we do find economic contractions to be somewhat more frequent in the period before the Fed, but as economist George Selgin explains, “They were also almost three months shorter on average, and no more severe.” Recoveries were also faster in the pre-Fed period, with the average time peak to bottom taking only 7.7 months as opposed to the 10.6 months of the post-World War II period. Extending our pre-Fed period to include 1796 to 1915, economist Joseph Davis finds no appreciable difference between the length and duration of recessions as compared to the period of the Fed. But perhaps the Fed has helped to stabilize real output (the total amount of goods and services an economy produces in a given period of time, adjusted to remove the effects of inflation), thereby decreasing economic volatility. Not so. Some recent research finds the two periods (pre- and post-Fed) to be approximately equal in volatility, and some finds the post-Fed period in fact to be more volatile, once faulty data are corrected for. The ups and downs in output that did exist before the creation of the Fed were not attributable to the lack of a central bank. Output volatility before the Fed was caused almost entirely by supply shocks that tend to affect an agricultural society (harvest failures and such), while
  • output volatility after the Fed is to a much greater extend the fault of the monetary system. When we look back at the nineteenth century, we discover that the monetary and banking instability that existed then were not caused by the absence of a government-established agency issuing unbacked paper money. According to Richard Timberlake, a well-known economist and historian of American monetary and banking history, “As monetary histories confirm…most of the monetary turbulence — bank panics and suspensions in the nineteenth century — resulted from excessive issues of legal-tender paper money, and they were abated by the working gold standards of the times.” In a nutshell, we are faced once again with the faults of interventionism being blamed on the free market.From here, we recommend Tom’s article Life with the Fed: Sunshine and Lollipops? and his resourcepage Economic Cycles Before the Fed.HuffPo’s Myth #10: “The Fed can’t do anything else to help job growth.”Bonnie Kavoussi: “Many commentators have claimed that there simply aren’t any tools left in theFed’s toolkit to be able to help job growth. But some economists have noted that the Fed could target ahigher inflation rate to stimulate job growth.”So we’re back to the old Phillips Curve analysis, which posited an inverse relationship betweeninflation and unemployment. You can get low unemployment, the argument went, but the price will behigh inflation.Time has not been kind to the Phillips Curve. As economist Jeff Herbener told an interviewer: The theory was that there was a trade-off between unemployment and inflation. But if you go back to the original article by Phillips, he never demonstrates that such a thing exists in the real world. He manipulated and maneuvered the data around to make it look as if there was one. Once his errors are swept away, and the data broken down, the Phillips Curve vanishes as any kind of long-run pattern. It didn’t take stagflation to teach us that. It was
  • always untrue. This raises a much more interesting question. How did the idea ever come to dominate the macroeconomic literature in the first place? Here’s my theory. Recall that Keynesian theory suggests there are no downsides to manipulating aggregate demand through fiscal and monetary policy. If you created full employment, it would stay there and we’d all live happily ever after. It seems paradoxical, then, that Keynesians would embrace a theory that suggests that creating full employment risks generating inflation. Keynes never said that, but people like Paul Samuelson did…. It became fairly well recognized, even in the 1950s, that there could be such things as inflationary recessions. That put orthodox Keynesians in big trouble. In order to cover themselves, Samuelson and Solow adopted the Phillips Curve as a model. It served as the means to save themselves from the realization that Keynesianism was fundamentally flawed. When inflation and unemployment increase, they don’t have to throw in the towel on Keynesian theory; they merely claim that the Phillips Curve has shifted outwards. They are saved–until of course the outward and inward shifts of the whole curve dominate movement along the curve. That means the supposed trade-off itself has disappeared. That’s exactly what happened. Many people see that the curve is now discredited. But in fact, it never did stand up. It was an escape hatch built by Keynesians that no longer allows them an escape.For the systematic takedown of the Phillips Curve — if only Bonnie Kavoussi could recognize a realmyth when she saw one, instead of just repeating what she learned in Ec 10 at Harvard — see chapter 3of Dissent on Keynes.HuffPo’s Myth #11: ”The Fed can’t easily unwind all of this stimulus.”Kavoussi: “Some commentators have claimed that the Fed can’t safely unwind its quantitative easingmeasures. But the Fed’s program involves buying some of the most heavily traded and owned securitiesin the world, Treasury and government-backed mortgage bonds. The Fed will likely have little problemfinding buyers for these securities, all of which will eventually expire even if the Fed does nothing. Buteconomists have noted that once the Fed decides it’s time to unwind the stimulus, the economy willhave improved to such an extent that this won’t be an issue.”Nobody is denying that the Fed could find a buyer for its assets. The issues are: (1) at what price willthe Fed be able to unload those assets, and (2) what happens to the financial sector when the reserves
  • are destroyed in the act ofselling off these assets? TheFed could dump its entireholdings of Treasury securitiestomorrow, but the critics areworried that this would sendinterest rates soaring andwould cripple the banks whichwould no longer have excessreserves.Look closely at what Kavoussiis saying: If the economybegins to recover before priceinflation becomes a problem,then the Fed will be able to sit back and let its “stimulus” unwind naturally. Yes, great, but what if theeconomy is still in the toilet when price inflation heats up? Then, as Bob Murphy argues, all of theFed’s ballyhooed “exit strategies” will seem pretty useless.In short, it’s safe to say that there are indeed plenty of myths about the Fed, and that Bonnie Kavoussibelieves pretty much all of them.A foot note on The Federal Reserve but first a Question have you even heard of TheFederal Reserve in school or in life and even if you did hear about it how much do youknow my guess not a whole lot and that’s the point the system doesnt want you to knowabout it because they are the real controllers of government behind the scenes they bribeour politicians with money lush bonuses and political favors to vote a certain way and indoing so they have corrupted our system of government it doesnt matter who you elect orwho you kick out of office we dont get to vote out the federal reserve it will still be therethat’s why nothing changes for the better no matter who is elected the fed has got to beaudited and abolished asap if we as a country really want to prosper ending the Fedsmoney monopoly has to be a priority for the american people the fed destroys wealth youlend them 50 bucks theyll give you 30 back theyre crooks theyre loan sharks theycharge us interest on our own money when we can create debt free money backed bysilver Lincoln did it so did JFK with Executive Order 11110 look it up so if the U.Seconomy collapses it will be because of The Federal Reserve if you have lost your job yourhouse or car or anything important to you because of the state of the economy it isbecause of The Federal Reserve system because this is the economy they The FederalReserve have created and having done so they have enslaved the american people andhumanity with institutions like the federal reserve ,IMF ,THE WORLD BANKETC..these systems have destroyed lives and country’s all around the world through thisdebt based money system they bailout there buddy’s on wall street and the tax payerspick up the bill this is unfair the system is rigged on purpose to destroy society so they canprofit off our misery The Federal Reserve is a private Banking cartel that only seeksprofit and gain and control over government to push there own agenda regardless ofhuman loss this system is the reason for our financial difficulties in the united states in the100 years of their existence they have looted we the American people of our wealth theyprint excessive amounts of money which in turn it steals the value from the money
  • already in existence and put it into the economy causing inflation so when you go getgasoline,clothes,you get less and pay more when you go food shopping you pay more andget less food so the federal reserve is literally taking food out of you’re mouth and yourefamily’s mouths and they also put you in a state of stress that you wouldve not been in ifthe federal reserve didnt exist just think about that... think of the evil of that and they thefederal reserve knows this and they dont care they profit off of wars,death,misery,and thesuffering of humanity go to youtube type in The Federal Reserve to see the truth foryou’re selves this system has to be abolished sooner rather then later END THEFED!!!!!!!! AND THE WORLD WOULD BE A BETTER PLACE GO HERE SIGN THE PETITION COPY & PASTE TO YOURESEARCH BAR AND CONTACT YOURE CONGRESSPERSON LET THEM KNOWYOU WANT THE FED AUDITED copy paste this movie 1.Fiat Empire: Why TheFederal Reserve Violates The U.S. Constitution 2.Zeitgeist Addendum to youre search orto youtube watch it to know the truth about The Federal Reserves Debt Mafia and howtheyve destroyed americas wealth through debtZeitgeist Addendum The Fraud of The U.S. Banking System VIDEO BELOW From Jekyll Island A Second Look at the Federal Reserve VIDEO BELOW Empire: Why The Federal Reserve Violates The U.S.Constitution VIDEO BELOW, Banking and the Federal Reserve VIDEO BELOW Money Masters a History of Money VIDEO BELOW Secret of Oz A History of Money VIDEO BELOW Federal Reserve Fractional Reserve Banking Explained VIDEO BELOW New World Order -Eustace Mullins VIDEO BELOW Magical Money Machine of The Federal Reserve Eustace Mullins VIDEO BELOW