The capital of controversy

In light of a history of politically-motivated misuse, the Federal Reserve should be abolished.

EditorâÄôs Note: The following column is the final installment in a series of three discussing the nationâÄôs central bank, the Federal Reserve, and the effect it has on the lives of citizens. Ever since the introduction of the President Barack Obama-backed stimulus package, conservative opposition has harshly critiqued the idea of âÄúdeficit spending,âÄù beating its chest and bellowing about âÄúliving within our means.âÄù While a sound, well-balanced economic policy is indeed a noble goal, the Republican arguments are little more than blithe platitudes, since neither political party, GOP included, has demonstrated an interest in financial responsibility for quite some time. To be fair, itâÄôs not entirely politiciansâÄô fault. Political movements stake their success on promises of big (and often incompatible) ideas that they canâÄôt possibly hope to fully finance, leading to a constant bipartisan stampede to borrow money. Fortunately, politicians just happen to have the sweetest sugar daddy anyone could ask for: the Federal Reserve. Last week, we described the Federal ReserveâÄôs unique power to create money through loans and geometrically expand the money supply, thereby providing the government with the cash to pay for things it canâÄôt afford. Unfortunately for Americans, this system has a hidden cost. Besides the need to eventually pay back the loan, the infusion of large sums of cash by the Federal Reserve has the effect of devaluing everyoneâÄôs money, causing the dollar to become increasingly worthless. Considering the monstrous consequences of borrowing Americans into poverty through unbridled deficit spending, one would hope that the government would do so only with austere deliberation. In reality, liberal and conservative politicians alike run up debts with the glee of a money-drunk teenager who just got their first credit card. For instance, you have former Vice President Dick Cheney. The administration of which he was a part managed to increase the nationâÄôs debt cap four times amid sprees of borrowing, nearly doubling the national debt. His justification? âÄúReagan proved that deficits donâÄôt matter.âÄù President Ronald Reagan indeed played a similar game, hiking spending while cutting taxes and borrowing vast sums in a practice dubbed, âÄúReaganomics.âÄù These policies gave rise to a controversial mix of increasing income inequality and runaway military spending, supported by borrowed money from the Federal Reserve. For the past three weeks, this column has appeared under the name âÄúThe capital of controversyâÄù specifically for this reason: the Federal Reserve provides the financial capital to fund the kind of controversial deficit spending championed by every president since Reagan. Consequently, the Federal Reserve is also the enabler of controversy, and the capital from which these controversies spring. If youâÄôre unconvinced, consider the war in Iraq. Although responsible governing principles would have required a tax increase to wage war, the Bush administration decided to keep its tax cuts and instead fund the war through deficit spending. If America did not have a central bank with currency-creating power like the Fed, there would have been no war in Iraq. No invasion, no botched reconstruction, no no-bid contracts, no âÄúcost-plusâÄù war profiteering. President George W. Bush would have had to hike taxes to pay for this debacle, and when cast in that light, it seems likely that the support for the war would have been as feeble as the pretenses on which it was begun. Would that it were so; despite CheneyâÄôs rhetoric, financial irresponsibility âÄî like putting a war on the FedâÄôs tab âÄî does in fact have consequences, and painful ones at that. Take gas prices as an example. As profligate deficit spending and low interest rates caused the dollar to plummet in value, oil, which is traded in dollars, became more expensive, driving prices up. Looking back on 2008, this has a devastating ripple effect across the economy, driving up prices in virtually every corner of the market: gasoline, plastic, food and so forth. A weak dollar has consequences for everyone, and it becomes weak for a reason. Whether itâÄôs overspending or artificially low interest rates, itâÄôs just a matter of time before poor money management catches up with us. Time and again American politicians have proven their willingness to use conjured, corrosive anti-wealth to finance projects and placate the masses, nickel-and-diming the dollar into oblivion. The moral of the story is clear: Unless we abolish the Federal Reserve system, the political urge to spend trillions of dollars we do not possess will continue to be too great a temptation to resist, even at the price of the nationâÄôs welfare. While the utility, and occasional necessity of a central bank is not in dispute, we cannot afford a permanent Federal Reserve and its associated fiat currency. Rather than back our dollar by ignorance and precedent, it should be stabilized by a basket of precious metals, and supported by a limited central bank established under circumstances of extreme but specific necessity. If facing global war or a salvageable banking crisis, our government ought to delegate the power to create money and regulate its value to a transitory central bank with an outlined timeframe of operation through the passage of an Amendment to the Constitution, as that same Constitution does justly require. To do so would ensure no future generation is shackled to the debts of their ancestors, no war is waged without true willingness, and no dollar ever devalued for politics. Only then can Americans truly claim to be free of economic tyranny, having forgotten and forsworn their capital of controversy. Chris Benson and John Brown are members of the Editorial Board. Please submit comments to [email protected]