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Combs: Economy no better with the Fed than without it

Is an audit so mauch to ask?

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Combs on the "inflation tax," July 2008

By Britt Combs | The McDowell News

Published: August 5, 2009

Last week we looked at the bizarre lengths Federal Reserve Chairman Ben Bernanke is going to in order to inspire confidence in the dollar among our Chinese creditors and enough confusion among the populace that they'll decide he must know what he's talking about.

What's more, he has to convince Congress that any attempt to audit his most exclusive of gentlemen's club would be a bad idea. Like most folks, Congressmen have been happy to believe that the dismal science is so hellishly complex that it is best left to the experts, and that those experts should not be questioned.

There are exceptions. Congressman Ron Paul has now got nearly 300 co-sponsors of his bill to audit the Fed. Many have probably signed on for political cover, knowing full well that Barney Frank and Nancy Pelosi will not let it come to a vote. But they've signed on. This is new and exciting.

Paul has made no secret of his contempt for the central bank. At the height of the boom he denounced Fed policies of easy money that created the housing bubble. On the House floor, he predicted the very crash that has ruined the fortunes of millions and cast so many out of work.

Despite his accuracy, however, the Obama administration shows no more interest in sound economics policies than did President Bush. But whereas talk against the Fed and against the borrow-and-spend policies of the Democrats and Republicans got no traction during the boom years, it is now gaining some ground, at least outside the beltway.

No longer can the supporters of deficit spending and central banking count on detractors being dismissed as conspiracy nuts.

Supporters of the Fed claim that a return of the gold standard would be suicide, a return to the "bad old days" of chaotic boom and busts of the 19th century. Anything, they say, would be better than that. Thank God for the Fed, which keeps us at full employment and keeps the dollar stable.

An entire army of economists disagree. They point out that the value of the dollar –- its buying power –- at the beginning of the 19th century was about the same as it was at the end. It would buy about one-twentieth of an ounce of gold. The miracle of that was that gold's worth fluctuated almost not at all.

But what of the greedy speculation and the ensuing panics and financial crises of the era?

History teaches that each recession of the century had political machinations and unsound banking practices at its root. The government launched campaigns of "internal improvements" the free market didn't want. Banks issued paper notes based on nothing more secure than the bank's faith that its debtors would pay. Administrations issued paper money to hide the cost of massive war campaigns.

Advocates today claim the 19th century was one long era of free markets run amok. The instability of the 19th century is all the indictment you need to show the free market cannot work, they say. In fact, it was an era of big business and big banking buying government policy, manipulating the laws to their own favor and to the detriment of the people.

The only thing that remained stable in the 19th century was the value of gold, and of paper notes redeemable in gold. Local exceptions during gold rushes were just that: local. And brief.

The very things the central bank was said to be able to cure, the inefficient use of credit and the instability of the dollar, have become permanent fixtures in the economy ever since the Fed took power.

Few Americans can remember a time when gold coins were money. Today we laugh at the archaic idea of gold dollars. But our grandparents would have laughed at us for accepting and saving paper dollars. The difference is, our grandparents owned their homes, had their bills paid and lived well on one income. They knew what their dollars were worth from one day to the next.
The progress we've achieved under the control of the Federal Reserve has left us broke, losing our jobs, unable to pay for school or to see a doctor.

Surely an audit is not too much to ask.

Reporter Britt Combs writes a weekly column for The McDowell News. He welcomes your comments.