Friday, March 27, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Prophets and losses: History of the Fed

sowell column sig

By
From page A9 | February 10, 2013 |

Now that the federal government is playing an ever larger role in the economy, a look at Washington’s track record seems to be long overdue.

The recent release of the Federal Reserve Board’s transcripts of its deliberations back in 2007 shows that their economic prophecies were way off. How much faith should we put in their prophecies today – or the policies based on those prophecies?

Even after the housing market began its collapse in 2006, Federal Reserve Chairman Ben Bernanke said in 2007, “The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”

It turned out that financial disasters in the housing market were not “contained,” but spread out to affect the whole American economy and economies overseas. Then Chairman Bernanke said: “It is an interesting question why what looks like $100 billion or so of credit losses in the subprime market has been reflected in multiple trillions of dollars of losses in paper wealth.”

What is an even more interesting question is why we should put such faith and such power in the hands of a man and an institution that have been so wrong before.

This is not just a question of a bad guess by Ben Bernanke. The previous chairman of the Federal Reserve System, Alan Greenspan, likewise misjudged the consequences of the housing boom and bust. Nor was the Federal Reserve’s staff any more accurate in its prophecies. According to The New York Times, “The Fed’s own staff still forecast that the economy would avoid a recession.”

Today, the economy has not yet fully recovered from the recession that the Federal Reserve System’s staff and chairmen thought we would avoid.

We all make mistakes. But we don’t all have the enormous and growing power of the Federal Reserve System – or the seemingly boundless confidence that Fed Chairman Ben Bernanke still shows as he intervenes in the economy on a massive scale.

Not only does the Federal Reserve System control the money supply and regulate banks, the Fed’s willingness to keep buying hundreds of billions of dollars’ worth of government bonds makes it easier for the Obama administration to keep engaging in massive deficit spending that runs up a record-breaking national debt.

The reason that the Federal Reserve can afford to continue buying huge amounts of government bonds is that the Fed is authorized to create its own money out of thin air. They use the fancy term “quantitative easing,” instead of saying in plain English that they are essentially just printing more money.

Being wrong is nothing new for the Federal Reserve System. Since this year is the 100th anniversary of the Fed’s founding, it may be worth looking back at its history.

President Woodrow Wilson explained the reasons for creating the Federal Reserve System. He said that the Federal Reserve “provides a currency which expands as it is needed and contracts when it is not needed” and that “the power to direct this system of credits is put into the hands of a public board of disinterested officers of the Government itself” to avoid control by private bankers or other special interests.

The Federal Reserve was supposed to prevent shocks to the economy that can come from drastic inflation or deflation, and reduce the dangers that can come from widespread bank failures. These are all good goals. But what is the Fed’s track record?

In the hundred years before there was a Federal Reserve System, inflation was less than half of what it became in the hundred years after the Fed was founded. The biggest deflation in the history of the country came after the Fed was founded, and that deflation contributed to the Great Depression of the 1930s. As for bank failures, they reached levels unheard of before there was a Federal Reserve System.

Like so many “progressives,” then and now, Woodrow Wilson seemed to think that, if those who made government decisions had no financial interest in those decisions, then they could be trusted to wield their powers in the public interest.

But the enormous power wielded by the unelected leaders of the Fed over the economy, unchecked by the constraints of the market, has repeatedly turned out to be more than human beings can handle.

Thomas Sowell is an author, economist and senior fellow at the Hoover Institution, Stanford University.

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Rio Vista singer ready for Rancho Cordova show

By Amy Maginnis-Honey | From Page: B1

 
Everyday life inspires model’s music

By Amy Maginnis-Honey | From Page: B1

Hosting gig for comic, birthday party on weekend schedule

By Amy Maginnis-Honey | From Page: B1

 
Brasher new president, CEO of Jelly Belly

By Ryan McCarthy | From Page: A1, 1 Comment | Gallery

 
 
Single lane set for Vanden, Cement Hill roads

By Ryan McCarthy | From Page: A3

 
Spring Fling set to return to Rancho Solano

By Susan Hiland | From Page: A3

 
Kids fishing day events return

By Susan Hiland | From Page: A3 | Gallery

 
Suisun police log: March 25, 2015

By Susan Hiland | From Page: A12

 
Fairfield police log: March 25, 2015

By Susan Hiland | From Page: A12

.

US / World

Lawyers dispute hoax claim, boyfriend says he was drugged

By The Associated Press | From Page: A1

 
Co-pilot believed to have purposefully crashed plane

By The Associated Press | From Page: A1

 
L.A. river revamp to cost double previous projections

By The Associated Press | From Page: A4

Harris tries to pre-empt ballot initiative called anti-gay

By The Associated Press | From Page: A4

 
US drops graphic leaflet to possible Islamic State recruits

By The Associated Press | From Page: A5

AP Exclusive: Special ops troops using flawed intel software

By The Associated Press | From Page: A5

 
State to alter ban on where sex offenders can live

By The Associated Press | From Page: A5

Governor awaits $1B drought relief bill

By The Associated Press | From Page: A5

 
Talent agency wants Matt McConaughey speaking fee secret

By The Associated Press | From Page: A7

 
Grateful Oklahomans salvage belongings after killer storm

By The Associated Press | From Page: A7

Fact Check: Myths in the political roar over Common Core

By The Associated Press | From Page: A7

 
US: Chicago-area cousins planned US terrorist attack

By The Associated Press | From Page: A7

Report: Teen says mom killed her siblings found in freezer

By The Associated Press | From Page: A7

 
House OKs bipartisan Medicare doctor bill; fate up to Senate

By The Associated Press | From Page: A7

Tunisians assure Star Wars sets safe from Islamic State

By The Associated Press | From Page: A10

 
US Thunderbolt II attack planes on training in Poland

By The Associated Press | From Page: A10

Syrian government shells kill 18 in south, activists say

By The Associated Press | From Page: A10

 
Turmoil in Yemen escalates as Saudi Arabia bombs rebels

By The Associated Press | From Page: A10

Russian, American ready for a year in space

By The Associated Press | From Page: A10

 
.

Living

Today in History: March 27, 2015

By The Associated Press | From Page: A2

 
Community Calendar: March 27, 2015

By Susan Hiland | From Page: A2

Horoscopes: March 27, 2015

By Holiday Mathis | From Page: A9

 
Parents may be enabling son’s drinking and hurting his employment chances

By Kathy Mitchell and Marcy Sugar | From Page: A9

.

Entertainment

Week in preview March 27 to April 3, 2015

By Amy Maginnis-Honey | From Page: B1

 
‘Downton Abbey’ to end after upcoming 6th season

By The Associated Press | From Page: B2

With ‘Downton Abbey’s coming demise, here are 5 past deaths

By The Associated Press | From Page: B2

 
Ken Burns unravels the mysteries of cancer in PBS film

By The Associated Press | From Page: B2

 
Review: Animated alien adventure ‘Home’ lands with a thud

By The Associated Press | From Page: B3 | Gallery

 
Entertainment Calendar: March 27, 2015

By Susan Hiland | From Page: B4

 
TVGrid

By Daily Republic | From Page: B6

 
.

Sports

Prep swimming preview: City teams look to make big splash

By Paul Farmer | From Page: B7 | Gallery

 
Marleau, Niemi lead Sharks past Red Wings 6-4

By The Associated Press | From Page: B7 | Gallery

Warriors can match franchise record for wins at Memphis

By The Associated Press | From Page: B7

 
Sharks sign 2 college players

By The Associated Press | From Page: B8

Top-seeded Wisconsin hangs to beat North Carolina 79-72

By The Associated Press | From Page: B8

 
49ers waive OL Jonathan Martin after 1 season with team

By The Associated Press | From Page: B8

Notre Dame races by Wichita State 81-70 for Elite Eight spot

By The Associated Press | From Page: B8

 
Kentucky overwhelms West Virginia 78-39 in NCAA Sweet 16

By The Associated Press | From Page: B8

San Diego city, county join forces on bid to keep NFL

By The Associated Press | From Page: B8

 
Labor, developers reach deal on proposed Inglewood stadium

By The Associated Press | From Page: B8

Italians will pull out of America’s Cup if boats downsized

By The Associated Press | From Page: B8

 
Fiancee of Aaron Hernandez to be called to testify Friday

By The Associated Press | From Page: B8

Stanford’s VanDerveer, Notre Dame’s McGraw to face off

By The Associated Press | From Page: B8

 
Signups for Friday, March 27, 2015

By Paul Farmer | From Page: B8

Former Germany coach Berti Vogts joins Klinsmann’s US staff

By The Associated Press | From Page: B8

 
Officials OK demolishing Irwindale Speedway for outlet mall

By The Associated Press | From Page: B8

This date in sports history for March 27, 2015

By The Associated Press | From Page: B9

 
Mirim Lee leads LPGA Tour’s Kia Classic

By The Associated Press | From Page: B10

 
Charley Hoffman takes PGA lead in wind-swept Texas Open

By The Associated Press | From Page: B10

.

Business

Range Rover offers an exclusivity that’s rich with irony

By The Washington Post | From Page: C1

 
Google’s new CFO gets $70M for defecting from Morgan Stanley

By The Associated Press | From Page: B11

Bankruptcy hearing could decide fate of RadioShack

By The Associated Press | From Page: B11

 
Microsoft wants US suppliers to give employees paid time off

By The Associated Press | From Page: B11

Lawmakers unhappy with new fracking rules

By The Associated Press | From Page: B11 | Gallery

 
Authorities go after crooked car deals in national crackdown

By The Associated Press | From Page: B11

Oil prices jump almost 5 percent as tensions mount in Yemen

By The Associated Press | From Page: B11

 
New Samsung, HTC phones coming April 10 in US

By The Associated Press | From Page: B11

.

Obituaries

Carol A. Vose

By Nancy Green | From Page: A4

 
Helen Kalis

By Nancy Green | From Page: A4

.

Comics

Sally Forth

By Daily Republic Syndicated Content | From Page: A8

 
Beetle Bailey

By Daily Republic Syndicated Content | From Page: A8

Baby Blues

By Daily Republic Syndicated Content | From Page: A8

 
Blondie

By Daily Republic Syndicated Content | From Page: A8

Frank and Ernest

By Daily Republic Syndicated Content | From Page: A8

 
Pickles

By Daily Republic Syndicated Content | From Page: A8

Dilbert

By Daily Republic Syndicated Content | From Page: A8

 
Baldo

By Daily Republic Syndicated Content | From Page: A8

B.C.

By Daily Republic Syndicated Content | From Page: A8

 
Peanuts

By Daily Republic Syndicated Content | From Page: A8

Wizard of Id

By Daily Republic Syndicated Content | From Page: A8

 
Garfield

By Daily Republic Syndicated Content | From Page: A8

Zits

By Daily Republic Syndicated Content | From Page: A8

 
Rose is Rose

By Daily Republic Syndicated Content | From Page: A8

Get Fuzzy

By Daily Republic Syndicated Content | From Page: A8

 
For Better or Worse

By Daily Republic Syndicated Content | From Page: A8

Sudoku

By Daily Republic Syndicated Content | From Page: A9

 
Bridge

By Daily Republic Syndicated Content | From Page: A9

Word Sleuth

By Daily Republic Syndicated Content | From Page: A9

 
Crossword

By Daily Republic Syndicated Content | From Page: A9

Cryptoquote

By Daily Republic Syndicated Content | From Page: A9