"I Print Therefore I Am" - The Fed Justifies Its Existence, Fails

Tyler Durden's picture

In an brief two paragraph blurb on its brand spanking new blog Liberty Street Economic, a post by "Blog Author" (one wonders if the New York Fed is as cheap in providing its bloggers with a blogging facilities as it is when "giving" the POMO interns Bloomberg terminals), the FRBNY provides a trite if enjoyable summary of the thinking that prompted the creation of the Fed, courtesy of one F.A. Vanderlip, president of Citibank, which apparently was as insolvent back in 1907 as it is now. The premise: the Fed is the cause of monetary stability and the prevention of "disorderly retreats or advances." That's actually supremely ironic because as John Lohman points out the main trade off, namely the 2,313% increase in CPI, ended up shafting the market to an even bigger crash in 2008 than the panic of 1907. But at least in the interim 101 years the Fed's overlords from Wall Street, managed to steal over 98% of the wealth of Americans in the form of shadow currency devaluation better known as inflation. So who cares about facts when that 5th private Polynesian island for Jamie Dimon has been fully paid for and all three underground cellars are stocked with gold...

From the Fed's blog:

An article written in March 1907 (on the cusp of a financial panic, and before the creation of the Federal Reserve) poses the question, “Is there money enough.” The author, F. A. Vanderlip, President of National City Bank (later Citibank), observes that a banking system without a central bank is prone to disorderly “retreats or advances,” with every banker acting for himself and none for the greater good:

“Many Europeans tell us that we are barbarously wasteful of money under our current banking system. They say that with our system of twenty thousand unregulated organizations, we are like a nation going to war with an army that has no centralized authority, with an army where each man is fighting as he independently thinks best; with no one to give general orders for retreat or advance….With us in any time of stress, each bank looks only to its own position, and reaches for reserves for its own vault, at no matter what cost to the whole system.”

In 1910, Vanderlip would take his views and memories of the “bankers’ panic” of 1907 to Jekyll Island, Georgia, to participate in the meeting that would lead to the creation of the Federal Reserve System.

So far so good. Yet here is the counterpoint, courtesy of John Lohman:

Over the 100 years since Vanderlip’s prescient vision, the Federal Reserve has been able to fine-tune and perfect its tools for managing the domestic economy.  The 2,313% rise in the CPI (from 9.23 to 222.7) is a very small price to pay for the security of knowing we will no longer have financial crises, and the associated economic downturns, like those of 1907.