This page has been archived and commenting is disabled.
How Could the Fed Protect Us from Economic Waves?
by Keith Weiner
Mainstream economists tell us that the Federal Reserve protects us from economic waves, indeed from the business cycle itself. In their view, people naturally tend to go overboard and cause wild swings in both directions. Thus, we need an economic central planner to alternatively stimulate us and then take away the punch bowl.
Prior to the global financial crisis of 2008, a popular term described the supposed benefits created by the Fed. The Great Moderation referred to the reduced volatility of the business cycle. For example, I have written before about economist Marvin Goodfriend, who asserted that the Fed does better than the gold standard.

(Credit: Greg Ziegerson and Keith Weiner)
This belief is inherent in the Fed’s very mandate from Congress. The Fed states its three statutory objectives as, “maximum employment, stable prices, and moderate long-term interest rates.” These terms are Orwellian. Maximum employment means five percent of able-bodied adults can’t find work. Stable prices are actually rising relentlessly, at two percent per year. The
meaning of moderate long-term interest rates must be changing, because rates have been falling for a third of a century.
That aside, the basic idea is that the Fed has both the power and the knowledge to somehow deliver an economic miracle. However, we know that central planning never works, even for simple things such as wheat production. Communist states have invariably failed to produce the food to keep their people alive. Stalin, Mao, and other communist dictators have deliberately starved off segments of their populations that they couldn’t feed.
The business cycle is vastly more complicated than the crop cycle. It plays out over decades. It involves every participant in the economy. It affects every price, including, especially, the price of money. It causes changes in how people coordinate in the present and how they plan for the future. And, there are feedback loops. Changes in one variable cause changes in others, which come back to affect the first variable. The very idea of centrally planning money and credit boggles the mind.
This should not be controversial. Yet, even those who know why government food planners fail, somehow retain their faith in central planning of the economy as a whole. Marvin Goodfriend—who spoke in favor of free markets, by the way—called his faith in central banking, “optimism.”
Is it true that the Fed is actually somehow providing stability, or even improving on a free market? Let’s look to the interest rate on the 10-year Treasury bond. The rate of interest is a key economic indicator.

(sources: National Bureau of Economic Research 1800-2001, US Treasury 2002-2014)
With that giant peak on the right side of the graph, we can immediately reject all claims to Fed-imposed stability. Now let’s label a few key dates.

The pre-Fed period is pretty stable. Two spikes occur due to wars that we know disrupted the economy—and they’re pretty small, considering. Interest declines to a lower level when the government was paying down its war debt. Things remain stable until the creation of the Fed.
After that, we get a rise, a protracted fall, an incredible and truly massive rise, and an endless freefall. Both rising and falling interest make it more difficult to run a business that depends on credit, such as manufacturing, banking, or insurance. The post-Fed period is a lot less stable than the pre-Fed.
A feature of the free market and its gold standard is interest rate stability. The rate can vary between the marginal time preference and marginal productivity. This tends to be a stable and narrow range.
Fed apologists argue that the economy would be even more unstable, if we had no monetary central planner. However, the fact is that it became a lot less stable after the Fed was created.
This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.
- advertisements -


In answer to the question posed by the article...
A simultaneous leap off some very high buildings by all Federal Reserve employees should do the trick.
Make 5000 bucks every month... Start doing online computer-based work through our website and start getting that much needed extra income every month... You'll get trained by us, no prior experience needed... Find out more about it on following address... www.extra-salary24.com
This is the logic behind all central banks, read & let it sink in and sink in well until it hurts, if it dont hurt, you havent understood.
The Protocols of Zion in Modern English A one page summary…
Goyim are mentally inferior to Jews and can’t run their nations properly. For their sake and ours, we need to abolish their governments and replace them with a single government. This will take a long time and involve much bloodshed, but it’s for a good cause. Here’s what we’ll need to do:
• Place our agents and helpers everywhere
• Take control of the media and use it in propaganda for our plans
• Start fights between different races, classes and religions
• Use bribery, threats and blackmail to get our way
• Use Freemasonic Lodges to attract potential public officials
• Appeal to successful people’s egos
• Appoint puppet leaders who can be controlled by blackmail
• Replace royal rule with socialist rule, then communism, then despotism
• Abolish all rights and freedoms, except the right of force by us
• Sacrifice people (including Jews sometimes) when necessary
• Eliminate religion; replace it with science and materialism
• Control the education system to spread deception and destroy intellect
• Rewrite history to our benefit
• Create entertaining distractions
• Corrupt minds with filth and perversion
• Encourage people to spy on one another
• Keep the masses in poverty and perpetual labor
• Take possession of all wealth, property and (especially) gold
• Use gold to manipulate the markets, cause depressions etc.
• Introduce a progressive tax on wealth
• Replace sound investment with speculation
• Make long-term interest-bearing loans to governments
• Give bad advice to governments and everyone else
Eventually the Goyim will be so angry with their governments (because we’ll blame them for the resulting mess) that they’ll gladly have us take over. We will then appoint a descendant of David to be king of the world, and the remaining Goyim will bow down and sing his praises. Everyone will live in peace and obedient order under his glorious rule.
"Mainstream economists tell us that the Federal Reserve protects us from economic waves, indeed from the business cycle itself."
Brooklyn has another bridge for sale.
The peak is obviously Volker's reacton to being told by European bankers that the over printing of the dollar (which had been going on since Johnson's guns 'n butter years) was going to cause the currency to collapse. He 'saved' the dollar once. That trick cannot be done again. Now we just wait for the dollar to be rejected again.
This chart will be of historical interest only in a decade.
The gold standard does not fix the problem, besides once governments discovered the beauty of fiat currency they can never be convinced of returning to the gold standard. The outcome will be a separation of the roles of money with fiat persisting and store of value function finding other vehicles.
They lied, from the very beginning.
"steady growth" LOL!!! Infinite/steady growth forever in a biosphere with finite resources is impossible you stupid fuck.
The Fed protects bankers/financiers, period and practices a "let the majority eat cake" monetary policy. Fine, let the guillotines sort it all out (again)...
humanity hasn't evolved...
The Fed protects the banking system from the business cycle. But its actions magnify the business cycle for everyone else. No job? Bad economy? How about we also debase the currency for you by printing more of it up so the bankers can stay in the black during these hard times? Now you have no job and no savings. You are welcome.
^^^this.
Any person or organisation (Central Banks) that thinks natural cycles can be controlled, are fools.
King Canute also tried, and failed miserably.
King Canute didn't "try" to control a natural cycle (the tide). He was showing his followers that he was NOT, in fact, divine as they were saying. In demonstrating that he could not control the tides he showed them that he was in fact just a man,, even though king. A little bit different, no?
You are correct, thanks for pointing that out.
The Fed ignores its mandate....now, who do we call?
Zero rates are not "moderate" by any definition.
Inflation is NOT price stability.
And promoting employment with low rates, as the government promotes idleness with generous social payouts, and while manufacturing is hamstrung by regulations and departs the country, is foolish.
The Fed PREVENTS the normal ebb and flow of the economy....which washes out the inefficient and rewards the efficient, which insures proper allocation of resources by the myriad of decision makers....rather than decision making by the few.
Hayek was correct....Central Planners can not know what millions in the markets know...
The FED has wired the pressure relief shut and the pressure doesn't magically go away. We can see it happen in the markets and main street, pressure is building and the band plays on. Then we've got the politicians playing power games with each other, but the people on the street being pushed down. The explosion will be bad.....
BTFD
** ALERT **
Watch out ZeroHedge commenters. The DOJ could be coming for you.
http://motherboard.vice.com/read/the-government-wants-names-of-online-co...
First mistake is errant belief Central Bank is protect plebian. Do not believe lie of bankster and economist patsy, inflation is not natural, is mechanism for extraction of wealth and labor from population.