St. Yellen’s Ascension to the Throne

Fri, Oct 11, 2013 - 9:07am

Most stories about central banking and central bankers in the mainstream financial press follow a certain pattern. For instance, the idea that these central planning institutions may not only be superfluous but may be downright harmful is considered utterly beyond the pale of debate. The only topics falling within 'allowed' discourse are discussions about various plans (should there more money printing? More forward guidance? Bla, bla, bla…), while the literal impossibility of central planning is simply ignored.

In the US, the economics profession has been thoroughly bought off by the Fed to boot (for details, see this article), so not a peep of fundamental critique will ever emanate from it, with proponents of the Austrian school representing the lone exception to this rule.

As the age of unanchored pure fiat money has progressed, central bankers, instead of being tarred and feathered and run out of town for the ever greater boom-bust cycles, the growing inequality, and the stagnation of real incomes their policies have produced, have increasingly begun to be hailed as the equivalent of superheroes in the media propagating the statist quo.

[Hear More: Professor Steve Hanke: The Fed's Stimulus Policies Are Making the Credit Crunch Worse]

Once they were thought of as gray bureaucrats, whose main job it was to 'take away the punch bowl just as the party gets going', as former Fed chairman William McChesney Martin put it. However, once the system had been set on a course of unfettered growth in credit and fiduciary media following Nixon's gold default (the 'temporary' suspension of the dollar's gold convertibility that has become permanent without an announcement to that effect), it soon became impractical and impolitic for them to 'take away the punch bowl'.

Even Paul Volcker, whose job it was to rescue and preserve the fiat money system, implemented a tight policy for only about two years as measured by developments in the true money supply. Once those two years had passed, money supply growth received its biggest year-on-year goosing of the entire post WW2 era – yes, under the 'tough' Mr. Volcker. However, the medicine of high interest rates he had prescribed for a while, did succeed in rooting out malinvested capital and as a result, the economy was on a fairly sound footing at the time. Unfortunately, on account of credit expansion starting to run wild thereafter, this situation didn't last long.

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