Mark Spitznagel Asks "Wouldn't We Be Better Off Without Central Banks?"

Tyler Durden's picture

Submitted by Mark Spitznagel via Institutional Investor,

Happy 100th Birthday, Federal Reserve - Now, Please Go Away

Nearly 100 years ago, on December 23, 1913, the Federal Reserve Act was signed into law, giving the U.S. exactly what it didn’t need: a central bank. Many people simply assume that modern nations must have a central bank, just as they must have international airports and high-speed Internet. Yet Americans had gone without one since the 1836 expiration of the charter of the Second Bank of the United States, which Andrew Jackson famously refused to renew. Not to be a party pooper, but as this dubious anniversary is observed, we should ask ourselves, Has the Fed been friend or foe to growth and prosperity?

According to the standard historical narrative, America learned a painful lesson in the Panic of 1907, that a “lender of last resort” was necessary, lest the financial sector be in thrall to the mercies of private capitalists like J.P. Morgan. A central bank — the Federal Reserve — was supposed to provide an elastic currency that would expand and contract with the needs of trade and that could rescue solvent but illiquid firms by providing liquidity when other institutions couldn’t or wouldn’t. If that’s the case, then the Fed has obviously failed in its mission of preventing crippling financial panics. The early years of the Great Depression — commencing with a stock market crash that arrived 15 years after the Fed opened its doors — saw far more turmoil than anything in the pre-Fed days, with some 4,000 commercial banks failing in 1933 alone.

A typical defense acknowledges that the Fed botched its job during the Great Depression, but once the wise regulations of the New Deal were put into place, and academic economists realized just what had gone wrong during the 1930s, it was relatively smooth sailing from that point forward. It would be silly, these apologists argue, to question the advantage of central banking now that we have learned so many painful lessons from experience, which Fed officials take into account when making policy decisions.

What about the excruciating pain of the recent past, dubbed the Great Recession of 2008 and 2009? In the five years from 2008 to 2012, almost 500 banks failed. What would history need to look like for people to agree that the Fed has not done its job?

But wait! The Fed is necessary to the promotion of stable economic growth — or so the conventional wisdom says. The idea is that without a central bank, the economy would be plagued by wildly oscillating business cycles. The only hope is a countercyclical policy of raising interest rates to cool an overheating boom, and then slashing rates to turn up the flame during a bust.

In actuality, the Fed’s modus operandi has been to trick capitalists into doing things that are not aligned with economic reality. For example, the Fed creates the illusion, through artificially low interest rates, that there are both higher savings and higher consumption, and thus all assets should be worth more (making their holders invest and spend more — can you say bubble?). The perpetuation of this trickery only delays the market’s eventual, and often precipitate, return to reality.

Many economists now recognize that the massive housing bubble of the early and mid-2000s was caused by the artificially low interest rate approach of Alan Greenspan’s Fed, enacted in response to the dot-com crash (itself the ostensible result of artificially low rates). At the time, this was viewed as textbook pro-growth monetary policy: The economy (allegedly) needed a shot in the arm to get consumers and businesses spending again, especially after the 9/11 attacks.

It appears those textbooks are wrong. Economists George Selgin, William Lastrapes, and Lawrence White analyzed the Fed’s record and found that even focusing on the post–World War II era, it is not clear that the Fed has provided more economic stability when compared with the pre-Fed regime, which was characterized by the national banking system. The authors concluded that “the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.”

In other sectors, we don’t normally defer to a committee of a dozen experts to set prices. Yet this is what the Fed does with its Open Market Committee, which routinely sets a target for the federal funds rate as well as other objectives. If we all agree that central planning and price-fixing don’t work for computers and oil, why would we expect them to bring us stability in money and banking?op09

On this, the 100th birthday of the Fed, it’s time to ask ourselves: Wouldn’t we be better off without a central bank?

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VD's picture

"In other sectors, we don’t normally defer to a committee of a dozen experts to set prices."


It's ACTUALLY LESS in other sectors; e.g. MEDIA (6 constitutes the collusive oligopolgy in that sector).


CH1's picture

Wouldn't we be better off without central banks?

Is that a trick question?


nightshiftsucks's picture

And fuck whoever down arrowed you,probably some stupid fuck in Obummers army.

Pegasus Muse's picture

December 23, 1913, a day that will live in infamy.  The day Princeston Professor Woodrow Wilson betrayed America and the American People by selling them out to the New York Banskter Mafioso to repay them for their financial support during his presidential campaign.  It's been downhill for the nation ever since. 

Woodrow Wilson was elected President in 1913, beating incumbent William Howard Taft, who had vowed to veto legislation establishing a central bank. One year earlier, in 1912, Wilson was brought to Democratic Party headquarters by Bernard Baruch, a conspiring banker mogul. Here Wilson agreed to a deal with the devils in exchange for political and financial support from the Rockefeller-Morgan bankers. Wilson swore in secret that if elected President, he would support the banker's Federal Reserve scam and push for the first ever progressive income tax on the American people.


Dugald's picture

A little OT....But,

Any one stopped to think why CB's are so willing to sell gold cheaper than the average cost of production......It's very simple...

Think on this.....  if nearly all the gold is held by just two or three countries, then that takes care of any chance of going back to a gold standard.

Think the war gamers have not thought of this? nuke those gold vaults and that takes care of any gold standard for all time.

Its called the GOLDFINGER GAMBIT.....

Gold is a clear and present danger, its our patriotic duty to nuke it!!  Wait for the SPIN, its coming.........

Clowns on Acid's picture

Yes... but they are all Cheesepopes....

DIgnified's picture

We need a concerted effort to find the owners.

El Vaquero's picture

You bring the gasoline, I'll bring the marshmallows. 

Colonel Klink's picture

I'll bring the matches.  Can someone volunteer to bring the fiat to light them with?

zaphod's picture

The fed will continue until the currency collapses and no one accepts dollars anymore.

This is an unfortunate solution, but it seems to be the only example of how any society has escaped government money in the past. Everyone has to collectively walk away.

DIgnified's picture

They wont let it happen unless theyre sure the can control the replacement.  That is the weak link, the transition.  

El Vaquero's picture

We can wait until the 4th of July and be patriotic about it by using things like Roman Candles. 

Colonel Klink's picture

Sure we can call them Freedom candles instead.

TeamDepends's picture

Dear Americans,

We now realize that over the last hundred years our economic policies have completely devastated you.  To rectify the situation, we have decided to drink ourselves to death this holiday season.  Merry Christmas,

The Fed

bozzy's picture

Fork and dangle the lot.

We need very little of anything the banking system wants to provide be they central, investment or retail. Bring on the credit unions.

Colonel Klink's picture

According to all the charts on the value of the dollars purchasing power, YES!

kevinearick's picture

it really doesn't matter; you are always going to have to discount stupid...

Property Taxes & Education

Protecting other people’s children from life, making them economic slaves to the false assumption of the majority, that life is a threat to be insured against, is pretty f-ed up. Look at the data.

Trying to teach a group the same thing at the same time, placing all individuals in the same time, is like sending everyone to the same elevator at the same time to go to the same floor, resulting in artificial scarcity, and it’s no accident.

Scale economies are about stopping time, until they can’t. Legacy labor, capital, employs the middle class to stop time, its own natural replacement. That’s what all those artificial borders employed and “free” trade agreements to marginalize labor are all about, insulating the old families from new family formation. Capital amplifies its insecurity with the middle class, which has never effectively transformed capital, because it operates on the assumption that a job is work.

The middle class argues for more make-work accordingly, but doesn’t see the irony, because it is paid to chase capital, the past, with ever-more efficiency, always surprised to find itself further behind, and calling for more money, taxation on the price inflation of inert or misused real estate, to feed a school system that reinforces the process.

Naturally, capital’s gravitational education system teaches that work, economic slavery, is to be avoided, with education, group compliance, the competitive advantage of numbers. Economies, and computers, lock up because the participants are in the wrong place at the wrong time doing the wrong thing, in fear of moving lest they fall further behind in the queue, to labor, heaven forbid.

Then the graduates get all upset when they discover that I am making six figures to sit in a coffee shop, having a double, in case their latest and greatest, most efficient, elevator breaks down. And they blow up when I make them walk the stairs, the point of which is to see who walks up and how they navigate the process, with timing.

It costs me to show up to a make-work job, relative to much better things I can do with my time. Adjusted for monetary and fiscal policy, my wages are less than minimum wage. The US dollar is worth 2 cents. The same morons that bankrupted Detroit are buying it from China, with laundered dollars.

An economy is always being dismantled and an economy is always being built. How much materials costs depends upon what you are building. The old-timers can eliminate all the middle men for you at will, but they are not going to tell you what to build; that’s not their job.

From the perspective of the middle class, throwing my children into the black hole after only a year of training was crazy, as was giving away my property, money and jobs. What it doesn’t get is that I can walk across any town and be offered a piece of property, which no external income can support, before I get to other side, and my kids are better than me.

Government by deferred responsibility is in the business of ignorance proliferation, with increasingly complex misdirection in the form of securities, the fixed lottery of entitlement ponzi. Government preemption over individual responsibility is a complete and utter fraud.

If you leave everything you touch a little better than you found it, the majority government is dependent upon you, because all it can do is slow down time, temporarily. Merkel isn't a rocket scientist. What else can she do but form a coalition to "save" the pensions? There have always been individuals shirking responsibility. Put that gravity, off-sheet liabilities magically accounted as assets, to work.

Capital can collect all it wants, but it can’t do anything with its collection without you. The hedge fund managers were offering me property back in the 90s, for lack of private income generation, and look at them today, wards of the government. You can go along with the sh-show, or rebel against it, but don’t bother complaining to an old-timer that you have no opportunity.

Accepting stereotypes, like “the boomers,” in a divide and conquer system of reduction to nothing, is self destructive. I didn’t have to spend my time, and as you have seen, the majority not only cannot comprehend what I am talking about, but also feels the need to respond with opposition, with an irrational expectation of the Fed to prevail, while it pretends to rail against the Fed, which is feeding it manufactured food, beginning with a self serving definition of labor.

Educate your self, by learning to set your distance, to navigate. Only capital is going to give you a car, knowing that you will drive it off a cliff, to sell you on another, and tell you that you are energy restricted. The Fed printed, keeping its controlled labor constricted, and prices to its labor inflated, big surprise.

The data tells you that 24 hours is more than sufficient, and you have much better things to do with your time, like build a better world for your children. Assuming the universe is nothing more than stupid gravity isn’t going to get you off this rock.

Happy New Year

FreedomGuy's picture

I personally think we should rescue the horse and buggy industry. Look at the decline that has set in since the introduction of the Fed! Think of all the jobs lost in those industries! Where is your humanity when you show those who are displaced no concern for their uncertain futures? They were making a good living at this industry and the nation was dependent on them.

Good post, kevinearik.  I would add that the concept of "stability" runs hand in hand with your post. As with most government promises, they are lies or at least delusions. Central planning, control and stability all favor the current structures, those who are currently powerful, currently employed and will stop time or attempt to stop time if left to their own devices (as you state).

Rule of thumb for those who favor liberty: Do not empower others with your life, your fate. They run it to their own benefit.

401K of Dooom's picture

Kevinearick, here is how a liberal would respond to you:  But what about the children?  You can't leave them behind!  Your mean-spirited!

Loophole's picture

Everything the Fed does results in the redistribution of real wealth, one way or another. Someone gets the money it creates or the benefit of it, and others get screwed because of the debasement of the currency and in other ways. We are forced to use the govt's fiat currency so they can accomplish this.

In other words, the Fed and it's supporters are just another bunch of GD thieves.

The idea that anything the Fed does "helps" the economy is inane at best and, really, downright fraud.

Peter Pan's picture

The FED has been tilting the pinball machine for 100 years and getting away with it. For an organisation of over 20000 employees you really need to wonder what is they do.

El Vaquero's picture

" really need to wonder what is they do."


Theft through a legalized ponzi scheme.  That's what they do. 

Peter Pan's picture

Yes I know but with 20000 people in their offices I still wonder what they do. I mean even if they were running every bingo game in the country they still would not need 20000 people.

css1971's picture

I'm pretty sure that 99% of the 200,000 don't know what they do either.

nickels's picture

The Fed "encourages" people to do things that they otherwise wouldn't do. Similarly, a pirate "encourages" you to walk the plank by sticking a cutlass in your ribs.

css1971's picture

The size of the organisation legitimises what they do. Must be important.

quasimodo's picture

I read the headline to this story and thought to myself "Did Captain Obvious from the Bob and Tom show pen that"?

JailBank's picture

If we don't have a FED how will we know what the fair market value of assets are?

Clowns on Acid's picture

Well... first we stop the Fed from pulling prices from their ass....

ebworthen's picture

It's a rhetorical question, just like:

"Would you be better off without a tapeworm in your gut?"

kchrisc's picture

Banking, as in fractional reserve banking, is nothing more than theft by fraud.

Central, as in centralized power and violence to take, is the antithesis to Liberty--slavery.

So a central bank is a centralized institution of theft and slavery.

Now what was the question?!


"Happiness is a warm head in a basket."

TomGa's picture

Heck, now even PBS is out saying publicly that the Fed is engaged in unsustainable illegalities....

PBS Drops a Bombshell on the Federal Reserve’s 100th Birthday Party

"PBS promised a “debate” this past Friday night on the “benefits and dangers” of the Federal Reserve as the Fed marks its 100 years of existence tomorrow. Instead of a debate, two famous stock market historians made the same stunning announcement – that the Fed has decided its job is to push up the stock market."


H/T Denninger

evokanivo's picture

No one watches PBS except those that are already disenfranchised. So ... why does this matter?

tony bonn's picture

the fed is a tool of the nazi banksters to controll money and is an evil satanic menace which should be obliterated into dust......yet its brutal private police force will not allow that....the fed rules by tyranny and answers only to itself....

Clowns on Acid's picture

Nazi's.... are they the moneychangers...?

dick cheneys ghost's picture

To the owners of The FED........thanks for the debt slavery..........I think I'll buy a condo on Rothschilds Blvd in Tel Aviv where debt slavery is celebrated


''The Federal Reserve Banks are a privately owned consortium controlled by the eight major stock-holding families: The Rothschilds of England and Germany, Moses Seif of Italy, Lazard Freres of France, the Warburgs of Germany, Kuhn-Loeb of Germany, Goldman-Sachs of the United States, Lehman Brothers of the United States, and the Rockefellers of the United States. Only three of these families are American. This small group decides the fates of hundreds of millions of people by their financial policies and maneuvers. It was Baron Meyer Amschel Bauer Rothschild, (born in 1744 and died in 1812), who said, "Give me control over a nation's currency and I care not who makes its laws.”''

Colonel Klink's picture

May a curse be upon those families for great pain and suffering for all time.

dick cheneys ghost's picture

Klink, check out this PROPAGANDA piece......the bankers blaming greedy bankers on the commies's.......this really is the 'twilight zone'.......the banksters will never take the blame for the monetary system forced upon us in 1913....they will always blame it on someone else.....fuck me

''The anonymous circle of screenwriters targeted both the writers and the film itself. 'It's a Wonderful Life' and other films were targeted under a film regime designed by Ayn Rand, the 'Atlas Shrugged' writer who has become an icon for some libertarian conservatives in recent years, according to Aphelis.''

Colonel Klink's picture

The answer is to paint them with their crimes against humanity using their own blood.

dojufitz's picture

All things come to an end......the Fed will end.......everything comes and goes.....

mrdenis's picture

The Fed and my curtans have a great deal in common .....they both look great once their hung 

ramacers's picture

forget better off/on for this/that, we need firing squads - lots of them!

Stuck on Zero's picture

Just about the time that Americans decide we don't need a central bank the Central banksters will decide we need a Central Central Bank.


AynRandFan's picture

The Fed's recent power grab is just the latest step in consolidation of power at the national level.  In Colorado, for example, the legislature spends most of its time passing laws to conform with the ever-increasing flow of regulations.  Colorado gave up its sovereignty long ago.  In Texas, where I live now, the legislature spends a lot of time passing its own laws and thumbing its nose at the Federal bureaucracy.  I like that.  People around here have a lot of yard displays repudiating Obama, like an empty chair perched up next to the fence along the highway.  Having recently moved from a co-dependent state, I fear for Texans when they realize the Federal government is importing South and Central America as fast as it can in order to overwhelm the electorate.  Some of that anger will boil over here, unlike the milktoast other states.

I never thought I would see a Federal agency take over both the private and public debt markets, set interest rates abnormally low for economic and political reasons, and re-engineer the financial markets in one fell swoop.  I didn't even think it was possible.

The most damning circumstance of all is that America's popular political culture not only accepts authoritarian control without complaint, but invites it.  It will take several generations to overcome this happy slide into socialism, if it ever happens at all.

Peter Pan's picture

A fiat system requires a central bank.

A gold and silver system is an international central bank without a chairman, offices and employees,

FreedomGuy's picture

How about a partially contratrian view for fun? For everyone who want to hang the Fed and perhaps a bunch of other government agencies, who is really at fault? It is a serious question. They were created by a government process through duly elected officials. They even did something back then no one bothers to do, now. They actually amended the Constitution! So archaic but perfectly proper. 

For all these years we have had our chance to observe, interpret and change it if we like...through our duly elected representatives. Those would be the representatives that average over 90% reelection rates. It does not change. It tends to grow, actually. Look at what the Fed does now versus the beginning.

I suggest it is our fault and the fact that over the last century we have outsourced our lives, especially economic lives to the government and it's agencies. If you believe in the goodness of government you should be happy and celebrate whatever successes you see. If, like me you clearly recognize that government is always out for itself, first and last then you say, "See, I told you so."

I personally would not hang anyone in the Fed or the government except by proving actual corruption. They are no more corrupt than the nitwits emptying the Social Security fund, making promises that promise to bankrupt Medicare and so on. We created the monsters. We keep feeding them. We watch them eat our lives and liberty and then we want to blame the monster for being what it is. In fact, we vote for MORE of it like ACA.

For the record, I am against central planners in all areas of life and I generally hate the people that institute and grow these things purposely. Then I despise those of you nitwits who keep voting for more of this crap. It would be okay except you force me to participate.

bozzy's picture

The weaknesses in your argument are first that the "duly elected" bit has been steadily and increasingly bought, until, from an outside perspective, it appears to dance to whatever tune its sponsors demand. Then second is the reality that the supposed freedom of choice is and has been increasingly subject to the enormous influence of the propaganda machine.

Hence I say, if you want to stop those who profit from the system, fork and then dangle a few"pour encourager les autres". Go on, just try it. Harsh but effective.

Waterfallsparkles's picture

At this point they are just self serving.

Waterfallsparkles's picture

The Fed has brought in Socialism.  They control the Market and which way it goes, up or down,  they control interest rates.  They control the price of goods, like food and energy, although they do not count it toward inflation.  Their actions controls the price of food, gas and home heating oil.

I suppose the question is what do they not control. All of this by a carbal of non elected Bankers.

FreedomGuy's picture

they control the inputs to the economy like the interest rates but they cannot always control the consequences.