The Fed Turns 100: A Survey of the Critics

Tyler Durden's picture

Submitted by Gergory Bresiger of The Ludwig von Mises Institute,

End America’s central bank because it caused the crashes of 2008, 1987, and 1929 and will blunder again.

That’s what many critics are saying about the Federal Reserve System (the Fed), which turns 100 on December 23. They note that on the Fed’s watch America has endured numerous bubbles, crashes, and inflationary cycles that have greatly devalued the dollar. The Fed, they say, has caused or aggravated several crashes.

“The Fed’s performance over the century has been abysmal, no matter how you look at it,” says Professor Joseph Salerno, a business professor and monetary expert at Pace University.

“If you say the goal of the Fed was to prevent calamities, then you have to say that it has been a failure,” says William A. Fleckenstein, a hedge fund manager and the author of Greenspan’s Bubbles.

Fleckenstein says he’s seen two bubbles over the past quarter century. He also believes that, under the Fed’s system of easy money, of interest rates of close to zero percent over the past few years that, “the Fed is once again creating a bubble.” The Fed should be abolished, he adds, because it has no accountability for its mistakes.

The length of the Fed’s charter is indefinite, said Fed sources, who would only speak on background. And that is generally the only way Fed sources will speak when asked about the bank’s current policies or historical record.

What is the Fed?

The Fed is a bank for banks that creates money. It is designed to be a lender of last resort to sick banks in times of crisis. And crisis is one reason why the United States finally returned to authorizing a central bank a century ago. (America had previously had a central bank in the 19th century, but its legislative re-authorization was vetoed by Andrew Jackson who railed against a central bank as the tool of moneyed interests.)

The Fed began with the goal of protecting the dollar. It was given the exclusive right to create money in 1913.

The Fed would “provide a means by which periodic panics which shake the American Republic, and do it enormous injury, would be stopped,” according to Robert Latham Owen, one of the authors of the original Federal Reserve Act.

Why was it given these powers?

After the Wall Street banking Panic of 1907 led numerous banks to fail, “there was a growing consensus among all Americans that a central banking authority was needed to ensure a healthy banking system and provide for an elastic currency,” according to the official Federal Reserve history.

But critics claim the Fed has made things worse. Subsequent problems were the result of Fed governors giving in to political pressure, providing elastic or “cheap money.” This is the controversial Fed policy of setting interest rates. If set too low, the rates will mislead consumers and businesses, causing them to borrow too much. And that can lead to a cycle of boom and bust.

That’s what many believe happened in 2007-2008 as millions of Americans were encouraged through cheap-money policies to use subprime loans to buy homes they couldn’t afford. But Fed critics contend that it had happened before.

For instance, interest rates were dirt cheap in 1972, which led later to an economic disaster as inflation jumped to 10 percent and interest rates went to over 20 percent in the 1970s.

“The consequence of the monetary framework of the 1970s was two bouts of double-digit inflation,” said Fed Chairman Bernard Bernanke in a recent speech entitled, “A Century of U.S. Central Banking: Goals, Framework, Accountability.” These 1970s events killed interest sensitive industries and destroyed many small businesses that couldn’t obtain credit.

These controversial money policies have lead to crashes, depressions, and recessions, including the crash of 1929 and resulting Great Depression, critics say. Some 10,000 banks failed between 1930 and 1933, according to Fed numbers.

“Tragically, the Fed failed to meet the mandate to maintain financial stability,” Bernanke said in his speech.

“Many people,” according to the official Fed history, “blamed the Fed for failing to stem speculative lending that led to the crash, and some argued that inadequate understanding of monetary economics kept the Fed from pursuing polices that could have lessened the depth of the Depression.”

One of the people blaming the Fed was economist and monetary historian Milton Friedman. He criticized Fed policies for triggering the 1929 crash and then causing a depression that lasted over a decade.

“Throughout the contraction, the System [the Fed] had ample powers to cut short the tragic process of monetary deflation and banking collapse,” according to The Great Contraction 1929-1933, by Milton Friedman and Anna Schwartz.

To Fed critics, the Great Depression of 1929 and the great inflation of the 1970s were part of a series of policy blunders that happened again in 2008.

“There never would have been a subprime mortgage crisis if the Fed had been alert,” Schwartz told the Wall Street Journal. “This is something Alan Greenspan must answer for.”

In Greenspan’s memoir, The Age of Turbulence, the former Fed chairman conceded that Fed actions leading up to the crisis were dangerous. He wrote: “I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk, and that subsidized home ownership initiatives distort market outcomes.” Still, Greenspan said he believes in the idea of every American having a home.

Economist Laurence Kotlikoff of Boston University says he’d give the Fed a C grade in its first century.

“It didn’t prevent the Great Depression or the Great Recession. It hasn’t fixed the core problems: opacity and leverage in the banking system,” Kotlikoff said.

“Central banking has a poor record but other methods do as well,” adds Jeffrey Gundlach, the manager of the Doubleline Total Return Bond Fund, which invests in mortgage backed securities. Gundlach has been very critical of cheap money policies of the Fed and predicted the crash of 2008. He believes the government should balance the budget first and then consider the Fed’s future.

Other critics, in reviewing the Fed’s record are harsher. They say it is time to end the Fed, in part because it favors certain banking interests.

“The Fed is an instrument of crony capitalism,” warns Hunter Lewis, a money manager and the co-founder of Cambridge Associates, an investment advisory firm.

“The Fed should be abolished because its legal monopoly of the money supply renders it an inherently inflationary institution able to create money at will and without limit,” says Salerno, noting that the value of a 1913 dollar is now five cents.

“History and current experience,” Salerno adds, “reveal to us that groups endowed with a legal monopoly over any area of the economy are prone to use it to the hilt to enrich themselves, their friends and allies.”

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backseatdriver's picture

Happy Birthday Fed, eat shit and die now

Xibalba's picture

Like anything natural, when you fuck with it, it becomes a Creature. In this case, a Creature from Jekyll Island.

hedgeless_horseman's picture



"The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”


-The Rothschild brothers of London writing to associates in New York, 1863.

Grande Tetons's picture

Worse than that...many will embrace the system that enslaves them. EBT anyone? Obamacare anyone? .............

pods's picture

The FED was created to allow banks to endure credit contraction and to allow the government to deficit spend and use the inflation tax.

Banks get "liquidity" to allow seizure of real property due to default of funny credit money without going under.

The Feds get that 2% or so per year in their pocket.

We get?


The FED was a perfect marriage of banking and government. 


EnslavethechildrenforBen's picture

The Fed is like a black hole in outer space that ejects hundred dollar bills in return for mountains, rivers oceans, continents, Gold and anything else it can purchase. Clearly a Military operation. They won't stop until there is nothing left of the earth but its molten core. And you folks continue to enlist your children in the services and law enforcement. You all must have I.Q.'s in the negative number.

EnslavethechildrenforBen's picture

The Federal Reserve is a Military Psych Ops.

Odin's picture

Yes, riiiight, they just made a long series of "mistakes" that just so happened to enrich the owners of the Big Banks, Big Oil, and the Military Industrial Complex at the expense of us all......... Such fortunate mistakes indeed.

EnslavethechildrenforBen's picture

They force us to come off our land to get pieces of green paper away from them so we can give it right back to them in the form of property taxes. To do so we have to enslave ourselves in order to get more pieces of paper away from them so we can give it right back to them in the form of income taxes. We are forced to have auto and health insurance, requiring us to get more pieces of paper away from them only to give it right back to them. We are forced to borrow with interest, keeping us in debt for eternity, requiring us to get ever increasing quantities of that green paper in order to give it right back to them...


We would have ended the fraudulent federal fucking reserve yesterday if all of them wore turbines, spoke an unrecognizable foreign language and had dark skin.

Actually, The Military is so fucking stupid even that wouldn't get their attention...

Dick Buttkiss's picture

The marriage is not only going to end; so are the parties to it:

fonestar's picture

Happy birthday Creature From Jekyll Island!

The mind control victims on ZH love you and wish you another 100 years!!

Four chan's picture

this is all quite fascinating but how do you determine fair compensation for the "time of life" you are giving up, 
when the means of that compensation is worth nothing, not tied to anything in the real 
world (unlike our most precious thing our time of life) and moreover is being consistently devalued by the creation of evermore of these debt instruments out of thin air? each one stealing silently from you, your savings/buying power. this is the why behind why the fed is evil to the core, a system of money not set up by patriots for patriots, but by jews who have enslaved us all and stolen a nation with worthless debt created out of thin air and edict.
Landotfree's picture

You can end the Fed but you won't eliminate the crashes.   As long as humans continue to attach interest to their medium of exchange, well, good luck.... 

These systems have been crashing with or without things called central banks for 1000s of years.  

Eliminating the Fed only addresses a symptom of the problem but not the problem itself.   


Xibalba's picture

Agree.  But that's also like saying, "Pepole have been drinking vodka for 1000's of years. Why stop giving them painkillers to help with the headache?" 

Oracle 911's picture

The real problem is the fractional reserve system in banking and unbacked currency, not the interest itself (if you buying a house, compound interest is bad, if you starting a business the simple interest is acceptable).

Crash Overide's picture

Does anyone else think that when the FED announces no taper and actually increases the amount being "created" each month, that  will be the final move that will send metals prices higher and crash the paper markets?

Landotfree's picture

You mean like in 2008 where the metal went down with everything else?

frankTHE COIN's picture

True. But it stopped falling first and then turned up first, then doubled. And technically and fundamentally can scream much, much higher.

N2OJoe's picture

As long as they can print more paper and short sell more paper gold, the "price" is entirely under control.


Until the Chinese, Russians, and Indans own all the phys and cant get any more, then it all falls apart...

Race Car Driver's picture

The Fed isn't gonna end - it's gonna morph. The Hundred Year Plan is almost over. It's time for a new world order.

" We have before us the opportunity to forge for ourselves and for future generations a new world order, a world where the rule of law, not the law of the jungle, governs the conduct of nations. When we are successful, and we will be, we have a real chance at this new world order, an order in which a credible United Nations can use its peacekeeping role to fulfill the promise and vision of the U.N.'s founders. We have no argument with the people of Iraq. Indeed, for the innocents caught in this conflict, I pray for their safety."

- Poppy Bush


Indeed, pray.

falak pema's picture

you mean you don't believe in "Optimal control"...?

Does not the optimal shake you to your very bone marrow?

As for the control, just imagine Steve Mcqueen driving his Mustang in Bullit! 

Now put the two together and you have Yellen! 

Daytona here we come. 

lynnybee's picture

Happy Birthday Fed, eat shit and die now ... please include me in on those birthday wishes ! 

Winston Churchill's picture

Don't forget the Love and XXX's.

prains's picture

“The Fed is an instrument of crony capitalism,” 




Nothing but the truth.'s picture

The only one's celebrating this milestone would be the bankers and the money dynasty masters.  For the rest of us ordinary folk , the financial enslavement is cause for revolution against these slavemasters.

Bryan's picture

Is anyone else just getting sick and tired of all the BS and lies that are spewed daily from our fearless leaders?  I know I am.  Can we secede from the rest of the idiots in the country? 


Bryan              YES YOU CAN!  But the drone attacks are a bitch.

Bryan's picture

Hm.  How can we get Libertarianism, Ron Paul, and the like to stand up to the rampant stupidity going on?  We need to put money where our mouth is and edjumicate the sheep, like the Repubs and Democrats have been doing.  !Viva la revolucion!

pods's picture

You don't even need to do that. Just avoid credit and let the FED and the Feral government explode.

This system only survives due to exponential increase in credit. The majority of credit is created by US.  House, car, school, credit cards.

We have all the tools to crush this behemoth.  

We make our own chains.  Stop debt expansion and the whole thing goes pop.  Reduce your taxable income, use cash and scale back to bare necessities, bartering if you can.


JustObserving's picture
The Fed Turns 100

Only the good die young.  Vampires are forever.

Al Huxley's picture

...and to celebrate they're going to run stocks to the moon - +200 on the dow every day from now til Christmas!  Hurray for the super rich! Hurray for the investment bankers!

LawsofPhysics's picture

Has the contract to keep issuing our money been renewed?    That's all that matters now...

Seasmoke's picture

I'm sure it will be on Christmas Eve , after the Egg Nog. 

Winston Churchill's picture

In perpuity in the 1930's.

Blame FDR for that, and WW for its creation.

Socialism really was invented as serf control  by the rich,

for the rich.

kchrisc's picture

End the Fed because it is a Unconstitutional criminal enterprise. Any other reason is dribble. That is unless you can find the authorization in the Constitution for a central bank.

Article 3, Section 3 may just cover it though.


"Warning: Ignorance of the Constitution and 'following orders' are no excuse."

DOGGONE's picture

This looks like admirable to me
What say you?

dick cheneys ghost's picture

I'm reminded of a comment by the prophet ''LongSoupLine''

''At this rate it's just a matter of fucking time before every central banker is hanging by their fucking balls and beaten with fucking sticks in the public square.

Fucking pieces of subhuman ass juice.  Fuck off and die Bernanke you stinking bank ball juice licking asshole.''

pods's picture

I miss him, he was our very own "two minutes hate," speaking what we all feel.

Think of how many marriages he saved by allowing a public venting of collective anger like that?

Not to mention livers.


flow5's picture

The fact is the monetary authority is so scared it has censored its technical staff:

"The Federal Reserve Plans To Identify “Key Bloggers” And Monitor Billions Of Conversations About The Fed On Facebook, Twitter, Forums And Blogs"

dick cheneys ghost's picture
'The Federal Reserve Cartel: The Eight Families'

''that ten banks control all twelve Federal Reserve Bank branches. He names N.M. Rothschild of London, Rothschild Bank of Berlin, Warburg Bank of Hamburg, Warburg Bank of Amsterdam, Lehman Brothers of New York, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Bank of Italy, Goldman Sachs of New York and JP Morgan Chase Bank of New York. Schauf lists William Rockefeller, Paul Warburg, Jacob Schiff and James Stillman as individuals who own large shares of the Fed. [3] The Schiffs are insiders at Kuhn Loeb. The Stillmans are Citigroup insiders, who married into the Rockefeller clan at the turn of the century.''

(fuck you CH1)

RaceToTheBottom's picture

Like all cancers, a mixture of surgery (kill the FED) and behavior change (balance the budget) are required for anything other than the patient's death.

Sufiy's picture

Another battle in 100 Year War Against Gold. Who is really behind "Gold 2.0" Bitcoin?


The Future Of Money: Gold, CIA And Bitcoin

 All these discussions about the CIA and Bitcoin connections are still in the conspiracy theory category like LIBOR and FOREX manipulations before. After China has banned its financial institutions  from participation in Bitcoin the question about who is really behind the Bitcoin is getting more and more interesting.   With Facebook we created for NSA all our profiles, with Bitcoin somebody is mapping our accounts, IDs and Networks. As the case with Silk Road shows Bitcoin transactions are public forever, can be mapped and build into evidence - so much for distribution and anonymity. Bitcoin Crashes As China Bans Financial Companies From Bitcoin Transactions

"After Peter Schift, The Economist, Forbes and even Mr Bubble himself - Mr Greenspan - have called Bitcoin The Bubble it took the announcement from China to Crash it down from Double Top and parity level with Gold. It is important to note that China has been buying the record amount of Gold this year and has encouraged its citizens to accumulate it. Now China is explicitly warning its people about the dangers of Bitcoin speculative Bubble and effectively taking its out of official monetary system.   Now position of FED and Congress on Bitcoin is getting more interesting: do we have the Mexican standoff between Gold backed China, FED backed US Dollar and ... NSA, sorry Satoshi Nakamoto backed Bitcoin?   Gold should be waking up to the Bitcoin action after this Chinese move and its timing is very important as well: Gold is very close to retest this year low."

RaceToTheBottom's picture

Funny that China apparently has a Consumer Financial Protection Agency.

Maybe they can start putting out recommendations for the US as well?

BudFox2012's picture

If we get rid of the Fed, who mint Obama's trillion dollar coin?    Who will needlessly debase our currency so we can afford to fight endless meaningless wars to make the miltary industrial complex rich?  Who will loan banks trillions at little to no interest so they can gamble it all away on risky bets in stocks/commodities?  And most importantly, who will drive the money helicopter?  You people really need to think this through before making such rash requests...

monad's picture

If we can lose the FR syndicate, we can lose the bffederal government. We don't need Barry and his vultures. They need us.

Crash Overide's picture

Does this have anything to do with the FED birthday?

Vampire squid in space?

Toolshed's picture

Ending the fed, replacing the income tax with a flat rate consumption tax so everyone pays their share, and returning to the gold standard would be a really good start on the road back to sanity. Fat chance.

U4 eee aaa's picture

I remember reading somewhere that the original charter was only for 99 years. Did they extend it or is it also running illegally that way too?