â€œLittle by little, business is enlarged with easy money. With the exhaustless reservoir of the government of the United States furnishing easy money, the sales increase, the businesses enlarge, more new enterprises are started, the spirit of optimism pervades the communityâ€¦bankers are not free from it. They are human. The members of the Federal Reserve board will not be free from it. They are humanâ€¦Everyone is making money. Everyone is growing rich. It goes up and upâ€¦until finally someone
whose judgment was bad, someone whose capacity for business was small, breaks; and as he falls he hits the next brick in the row, and then another, and then another, and down comes the whole structure. That is no dream. That is the history of every movement of inflation since the world's business began, and it is the history of many a period in our own country. That is what happened to a greater or less degree before the panic of 1837, of 1857, of 1873, of 1893 and of 1907â€¦when credit exceeds the legitimate demands of the country the currency becomes suspected and gold leaves the country.â€�
A politician named ROOT
I am currently writing a book entitled, "The Conscience of a Libertarian" patterned after my hero Barry Goldwater and his all-time conservative best-seller, "The Conscience of a Conservative." In my book, I present Barry Goldwater's insightful philosophy back in 1959 (when he wrote his book) to prove that nothing in politics ever really changes. It has been half a century since Goldwater put pen to paper to write his amazing book. His words back in 1959 could easily be used today to describe virtually all of our country's problems- and few readers would even notice that anything he talks about is half a century old. His description of problems and solutions back then turned out to be right on the money. If only we had listened.
Well the quote above by a certain politician named ROOT certainly describes the economic crisis of 2008 to a T: the bailout, the bankers' mistakes, the stock market collapse, the credit freeze, and the reaction of the Federal Reserve. But they aren't my words. And they weren't spoken about the government banking crisis and bailout of 2008. Yes, they were the words of a politician named Root. Just not this Root.
Those words above were actually spoken in 1913 by Elihu Root, United States Senator from the state of New York. That distinguished politician Root went onto become Secretary of War and Secretary of State under President Teddy Roosevelt. But no truer words have ever been spoken. Despite being almost a century old, those words almost perfectly describe our current economic crisis. Once again, proving that nothing ever really changes. History repeats itself again and again- it's just a recycling of the same events and same mistakes. Only those who study history can hope to avoid making those same mistakes over and over again.
As a former member of the 2008 Libertarian Presidential ticket who speaks across the country on economic issues, I am constantly asked, â€œHow would you solve our current economic crisis?â€� In my new book, I'll explain how I'd dramatically cut spending and taxes. I'll explain how important it is to institute term limits (to limit the power of career politicians). I'll explain the greatest threats to our economic prosperity- big government, big unions, and big taxes. More specifically the union threat that comes from teachers unions, auto unions, lawyer unions (known as The Bar Association) and perhaps the most damaging of all, government employee unions. I'll describe the threat to our economy from illegal immigration. I'll describe the threat to our economy from proponents of global warming. But before the book even comes out, I want to present what is perhaps the most important piece of the puzzle: the elimination of the Federal Reserve. It's that important.
I have come to understand that we must destroy this cancer on our economy before the Fed destroys us. And in concert with the elimination of the Fed, we must go back to the Gold Standard. Is this a new solution? No, my namesake Elihu Root had the same advice back in 1913 when arguing against the formation of a central bank. If only we had listened to Root back then, just as we should have listened to Barry Goldwater back in 1959.
â€œEliminate the Fed? Are you crazy?â€� I can hear the naysayers now. But the Federal Reserve isn't the solution. Like big government (of which they are a tool), the Fed is the problem. Virtually every economic downturn since 1913, when the Fed was created, can be traced to Fed policies. Lest we forget, the Fed was around in 1929 when the stock market crashed. They were around for the Great Depression- actually they were right smack dab in the middle of the worst economic mess in U.S. history. Their policies helped to turn a deep recession into the Great Depression. Even if you're a Fed defender, and don't agree that they were a contributor to the Great Depression, you'll have to admit that the Fed didn't prevent or solve the deepest economic crisis in American history. They certainly didn't see it coming. But then they never saw the financial crisis of 2008 coming either.
As recently as last April 2, 2008, the Fed didn't even know we were in a recession. Back then, Fed Chairman Ben Bernanke testified before a joint Congressional committee where he said, "A recession is possible." He described the economy back then as in "slight contraction." In response to those remarks, I wrote a political commentary (just like this one). My shocked and angry response was to ask "Are the Feds cooking the books?" That's how certain I was as a small businessman that we had already been in a deep recession for months. I believed Bernanke's statement to be so ignorant, naive and just plain dangerous, as to indicate he was either purposely lying to the American public, or hopelessly out of touch.
How is it possible that a small businessman like me clearly understood how bad things were in the
American economy way back in April 2008, while our Fed Chairman was completely in the dark (or in denial)? The answer is simple- I live on Main Street. The Fed lives in an "Ivory Tower" and hasn't a clue what's happening in the real world, until after it happens.
The Fed doesn't run a business. The Fed simply reads about business. They study reams of economic statistics- thereby deducing we have a problem long after guys and gals like me with a dozen, or a few dozen employees, have already experienced it. Small businesspersons are the "canary in the coal mine."
Little 'ol me knew there was a huge economic crisis going on, when the big, bad, powerful Fed still didn't have a clue. How scary is that? These are the geniuses running the entire U.S. economy. Worse, Bernanke is widely considered one of the world's experts on the Great Depression. This is a man who once served on a panel of experts that determine when recessions begin and end. Yet it turns out he doesn't know his front from his end. It is obvious that if you want to know whether we're in a recession or not, you're better off asking the butcher, baker or candlestick maker. Or in this case, the butcher's son.
By the way, in that same commentary, I reported that the economy for small businessmen like me was
so bad that we were not only already in a recession, but facing the deepest recession since 1929- possibly a second great depression. It turns out that my prediction was far more accurate than anything that came from the lips of Ben Bernanke, or anyone in the Fed, last Spring. Perhaps we need to put a small businessperson in charge of the Fed. Or better yet, eliminate it altogether.
The Fed's strategy is simple: The Fed floods the economy with â€œeasy moneyâ€� by either artificially lowering interest rates, or printing more money. That creates an artificial economic boom- to help politicians to get elected or re-elected. Invariably this artificial economic boom is followed by a very real â€œeconomic bust.â€� Recent examples of this artificial bubble bursting can be seen in the dotcom (technology & computer) world implosion in 2000, and again when the banking, credit and real estate markets collapsed in 2008.
If it's so easy to see the mistake, why does the Fed continue to pursue a failed strategy? Good question. The answer is simple: political pressure from fat cats (big contributors like banks, Wall Street, real estate firms), special interests (big contributors), and voters- who demand prosperity, easy money, low interest rates, and entitlements from big government. Someone has to pay for all these giveaways, handouts, goodies, corporate welfare, bailouts, stimulus packages, and entitlement ponzi schemes. The Fed makes it all possible by printing up new money to pay for it all. Without the Fed printing presses working overtime, politicians couldn't make promises to pay for every program under the stars. They certainly couldn't afford to pay for all those promises.
Nothing in the Constitution gives Congress the authority to give control of monetary policy to a central bank. NOTHING. That same United States Constitution demands that our U.S. currency be backed by stable commodities- such as gold or silver. The gold standard is a very simple concept- paper notes (our currency) are simply set at a fixed value, by matching them to pre-set fixed quantities of gold.
The return to the gold standard is (excuse the pun) the â€œgold standardâ€� for a stable, credible, reliable money supply and a true free market economy. Why don't politicians want to set our currency to the gold standard? Simply because the gold standard stands in the way of the goals of big government proponents and their endless spending programs. The gold standard prevents politicians from inflating the money supply to hide the actual costs of the welfare state- from welfare itself, to corporate welfare, bailouts, handouts, entitlements, stimulus packages and nonstop wars across the globe. A billion here, and a billion there, and eventually this stuff starts to add up to serious money! That's exactly what politicians are afraid of.
In 1971 Richard Nixon totally removed the dollar's link to gold. This final deathblow to â€œrealâ€� American money created the fiat currency (paper notes) that we all use today. With this decision, the Fed could now print unlimited amounts of inherently worthless paper dollars, and in their eyes, were immune from any (immediate) consequences.Why did Nixon do it? To hide out-of-control government spending on the Vietnam war. Bombs, bombers, jet fighters and tanks cost big money. Governments can't afford them- unless the Fed covers the actions (and tails) of big spending politicians by creating more money out of thin air.
Needless to say, since 1971 inflation and the CPI have soared and the savings of hardworking Americans have been subtlety robbed to fund the giant welfare system that exists today. Unlike the deflationary early 1930s, when the US was on a gold standard and hence couldn't print unlimited dollars, today the US has no standards at all. The Fed can and does print (or create via computer) as many dollars as it wants and as a result, the money supply growth has vastly outstripped underlying real economic growth since 1971. Bernard Madoff has nothing on the U.S. government. Our government runs the biggest ponzi scheme on earth.
The politicians want no part of the gold standard because it threatens to limit their imaginations (and re-elections). It ruins their party. It keeps their imaginations (and greed) in check. With a gold standard in place there is no ability for a central bank to create money out of thin air to fund any and every bailout, stimulous package, pet project, or earmark. The gold standard forces politicians to live within their means. It forces banks to lend only to those with the credit to afford it- because the federal government is prevented from printing unlimited new money to bail them out.
The gold standard is a Libertarian's dream. It prevents deficit spending. It prevents the unlimited hiring of government bureaucrats- and the unfunded pension liabilities that come with them. The gold standard hinders government's ability to dole out massive welfare and entitlement programs. The gold standard stands in the way of government's ability to redistribute wealth and pursue economic re-engineering. With the gold standard in place, government automatically becomes more open, honest and transparent- it either lives within its means or raises taxes, as opposed to simply printing more money (creating a stealth tax called inflation).
Instantly, with the gold standard in place, government is more responsible and accountable to the people and the taxpayers. Inflation caused by the wholesale printing of money by the Fed is theft- government sanctioned white-collar crime. Because of the wholesale printing of money by the Fed, taxpayers and citizens lose the value in their savings accounts and assets without knowing how or why.
Here is a good question to ask your political leaders and representatives: Why on earth would we want to rely on the wisdom of fallible human beings (at the Fed) to determine monetary policy and stability,
when the gold standard is infallible? There is concrete proof that the Fed makes mistakes- afterall, the Fed never saw this present economic crisis coming. Sound familiar? The flawless Fed never saw the 1929 crash or Great Depression coming. Perhaps an adjustment to their crystal ball is needed? The gold standard is objective- it doesn't need to think. Humans on the other hand are subjective- they often make bad decisions (over-reacting, under-reacting, or being intimidated in response to political pressure at the moment).
Under the gold standard, money regulates itself. The gold standard regulates government by keeping spending under control. The gold standard regulates the behavior of banks (limiting their lending to qualified borrowers). The gold standard regulates savings- citizens are automatically incentivized to save more if their money is actually worth something. Why save $1.00 today, if that same $1.00 is worth 30% less tomorrow due to the Fed printing enormous amounts of new money?
The gold standard regulates interest rates, which suddenly reflect real supply and demand for credit, not numbers artificially created out of thin air to reflect political needs. The gold standard regulates business, as CEO's must base their business decisions on sound policy (knowing government or the Fed won't be there to bail them out).
Elihu Root realized all this back in 1913. It's a shame we didn't listen. Please study history and explain to me where the elder Mr. Root was wrong? Explain to me what exactly the Fed has accomplished in the almost 100 years since then? How have those results been an improvement in performance over the economic results the U.S. economy achieved under the gold standard?
If you don't believe me, or Elihu Root, just listen to the words of Thomas Jefferson, the Founding Father who wrote our Declaration of Independence:
â€œI believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.â€�
Lastly, ask yourself the most important question of all: With record-setting budget deficits under President Bush; trillion dollar bailout and stimulus programs under President Bush; even bigger trillion dollar bailout programs under President Obama; even bigger trillion dollar stimulus packages under President Obama; record-setting handouts, entitlements and redistribution of wealth under President Obama (due to higher taxes); record-setting national debt under President Obama; and the Fed printing presses working overtime to create unlimited quantities of depreciating dollars (to cover up all this lavish spending); why would anyone want to own the dollar? Why indeed. We are in for a rough ride.
The antidote is simple: destroy the Fed before the Fed destroys us.
Wayne Allyn Root was the 2008 Libertarian Vice Presidential candidate. For more of his views, commentaries and to watch his many media interviews, please visit his web site at: www.ROOTforAmerica.com