Shouldnot this creature from Jekyll Island, for all its manifold crimes andsins against the republic, also be summarily put to death?
by Pat Buchanan
For the financial crisis that has wiped out trillions in wealth, many have felt the lash of public outrage.
Fannieand Freddie. The idiot-bankers. The AIG bonus babies. The BushRepublicans and Barney Frank Democrats who bullied banks into makingmortgages to minorities who could not afford the houses they weremoving into.
But the Big Kahuna has escaped.
The Federal Reserve.
“(T)he very people who devised the policies that produced the messare now posing as the wise public servants who will show us the wayout,” writes Thomas Woods in “Meltdown.”
Already in its sixth week on the New York Timesbest-seller list, this eminently readable book traces the Fed’s role inevery financial crisis since this creature was spawned on Jekyl Islandin 1913.
The “forgotten depression” of 1920-21was caused by a huge increase in the money supply for PresidentWilson’s war. When the Fed started to tighten at war’s end, productionfell 20 percent from mid-1920 to mid-1921, far more than today.
Why did we not read about that depression?
Becausethe much-maligned Warren Harding refused to intervene. He letbusinesses and banks fail and prices fall. Hence, the fever quicklybroke, and we were off into “the Roaring Twenties.”
But, theFed reverted, expanding the money supply by 55 percent, an average of7.3 percent a year, not through an expansion of the currency, butthrough loans to businesses.
Thus, when the Fed tightened in the overheated economy, the Crash came, as the stock market bubble the Fed had created burst.
HerbertHoover, contrary to the myth that he was a small-governmentconservative, renounced laissez-faire, raised taxes, launched publicworks projects, extended emergency loans to failing businesses and lentmoney to the states for relief programs.
Hoover did what Obama is doing.
Indeed,in 1932, FDR lacerated Hoover for having presided over the “greatestspending administration in peacetime in all of history.” His runningmate, John Nance Garner, accused Hoover of “leading the country downthe path to socialism.” And “Cactus Jack” was right.
Terrifiedof the bogeyman that causes Ben Bernanke sleepless nights — deflation,falling prices — FDR ordered crops destroyed, pigs slaughtered, andbusiness cartels to cut production and fix prices.
FDR mistookthe consequences of the Depression — falling prices — for the causeof the depression. But prices were simply returning to where theybelonged in a free market, the first step in any cure.
Obama isrepeating the failed policies of Hoover and FDR, by refusing to letprices fall. Obama, with his intervention to prop up housing prices andBernanke with his gushers of money to bail out bankrupt banks andbusinesses are creating a new bubble that will burst even morespectacularly.
The biggest myth, writes Woods, is that it was World War II that ended the Great Depression. He quotes Paul Krugman:
“Whatsaved the economy and the New Deal was the enormous public worksproject known as World War II, which finally provided a fiscal stimulusadequate to the economy’s needs.”
This Nobel Prize winner’s analysis, writes Woods, is a “stupefying and bizarre misunderstanding of what actually happened,”
Undoubtedly,with 29 percent of the labor force conscripted at one time or anotherinto the armed forces, and their jobs taken by elderly men, women andteenagers with little work experience, unemployment will fall.
Buthow can an economy be truly growing 13 percent a year, as theeconomists claim, when there is rationing, shortages everywhere,declining product quality, an inability to buy homes and cars, and alonger work week? When the cream of the labor force is in boot camps ormilitary bases, or storming beaches, sailing ships, flying planes andmarching with rifles, how can your real economy be booming?
Itwas 1946, a year economists predicted would result in a postwardepression because government spending fell by two-thirds, that provedthe biggest boom year in all of American history.
Why? Becausethe real economy was producing what people wanted: cars, TVs, homes.Businesses were responding to consumers, not the clamor of a governmentrun by dollar-a-year men who wanted planes, tanks, guns and ships toblow things up.
“The Fed was the greatest single contributor tothe crisis that unfolds before us,” Woods writes of today, and “moredollars were created between 2000 and 2007 than in the rest of therepublic’s history.”
After 9-11, the Fed kept interest rateslow — in one year as low as 1 percent. That money flooded into thehousing and stock markets. And in 2008, as the Fed tightened, thebubble burst.
Now the money supply is again expanding, torescue us from a crisis created by the previous expansion. Of NicholasBiddle’s Bank of the United States, the great Andrew Jackson waseloquent.
“It has tried to kill me,” he said. “But I will kill it.” And he did.
Shouldnot this creature from Jekyl Island, for all its manifold crimes andsins against the republic, also be summarily put to death?
Mr. Buchanan is a nationally syndicated columnist and author of Churchill, Hitler, and “The Unnecessary War”: How Britain Lost Its Empire and the West Lost the World, “The Death of the West,”, “The Great Betrayal,” “A Republic, Not an Empire” and “Where the Right Went Wrong.”