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The insidious impact of the Federal Reserve

BY ANI DeGROOT - GUEST OPINION | NOVEMBER 08, 2010 7:20 AM

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Will Mattessich brought up a number of points in his Nov. 5 column"End the Fed?" that need to be addressed.

Mattessich fails to address what a gold standard is and the benefits of such a system. Under the old gold standard used in the United States, the government issued gold specie. When price levels spiked, it was in times of war when government borrowing led to high inflation. This has all changed since the advent of the Federal Reserve.

The U.S. dollar today is worth about 5 cents of what it was in 1913. This is precisely because of the expansion of the warfare-welfare state that the Federal Reserve enables. Even since the last vestiges of the gold standard were removed in 1971, when President Nixon ended the Bretton Woods treaty, the U.S. dollar has lost 80 percent of its value.

But what is the effect of an increase in prices? After all, don't wages rise, too? The answer is that they do not rise in tandem. "Inflation is a monetary phenomenon" as Milton Friedman said, but it isn't uniform. When new money is introduced into the economy, the people who get the money first get to spend the money at old prices, which drives the prices up.

The poor and the working class suffer because they are always the last to get the money. Meanwhile, the rich and the politically connected that press for the creation of new money are the ones who get all the benefits of this money.

As I mentioned, the periods when inflation spiked were historically during times of war. The Federal Reserve has enabled the permanent warfare state that the United States has pursued since the inception of the Fed. The ability for the government to borrow in perpetuity allows it to continue fighting wars overseas with little apparent cost to the taxpayer. Inflation is a tax.

The Federal Reserve has enabled the expansion of the state in many other areas as well. It has enabled the creation of a system of special-interest spending in many other areas that politicians feel wary of raising taxes to fund. It allows them to borrow to give money to all sorts of special interests, such as big agriculture, big pharmaceutical companies, and even to bail out failing automakers.

If nothing else, one should realize the history of the Federal Reserve as one of conspiracy of the big banks, by the big banks, and for the big banks. The legislation creating the Federal Reserve was drafted at a secret conference in Jekyll Island, Ga., a private playground for the wealthy and well-to-do. They created this central bank as a way to help privatize the profits and socialize the losses from bad banking practices by creating a "lender of last resort."

Inflation is viewed as a panacea for all of the ills of the economy, but it is the exact opposite. Inflation steals from the poor and gives to the wealthy. Rep. Ron Paul's supporters understand exactly the policies that for we vociferously advocate. We advocate peace, liberty, and prosperity for all. Those who are in favor of a central bank and bad money do not realize the effect of these institutions.

For more information on these topics, please visit the meetings of the Young Americans for Liberty on at 8 p.m. Mondays in the River Room of the IMU and the Students for Austrian Economics on at 7 p.m. Thursdays in 351 IMU.

Ani DeGroot is a UI senior and the state chairwoman of Young Americans for Liberty.


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