By Ronnie O’Leary Columnist
For decades, The Federal Reserve (fed) was an institution that everyone took for granted: something that was only mentioned in passing and never questioned. However, more Americans are realizing that the Fed is a violation of economic law. After Jeb Bushes speech, a student asked his opinion about whether we should audit the Fed.
Someone else asked Christina Romer whether she was worried that a weak dollar could devastate our economy. In fact, a bill to audit the Fed recently passed the House of Representatives; however, this message has not yet reached the Whitehouse, and neither candidate has shown any interest in decreasing the Fed’s power.
The Fed is the nation’s central bank: it was created in 1913 as the lender of last resort, and it has been a monetary disaster: The government has used the Federal Reserve to finance its projects whenever taxation seems politically dangerous. As of 1933, America is no longer on a commodity standard; our currency is just pieces of paper. This enables the Fed to print however much money as it wants, since the amount of dollar bills are not dependent on any commodity.
Our dollars were once dependent on gold, and dollar bills merely represented a certain amount of gold. This means that the value of dollar bills must equal the amount of gold in the economy. Since the amount of gold cannot be increased very quickly, but productivity increased very rapidly during this time, prices fell, and one person could do more with each unit of currency. However, it is easy to increase the amount of paper, and once the currency was no longer tied to gold, there was a dramatic increase in the supply of dollar bills.
When there is more money chasing each product, the prices of those products rise. The first recipients of the money spend it, and as the money flows through the economy, prices begin to go up.
Our economy is still extremely vulnerable: unemployment remains high, especially among young people, our deficit is astronomical, and the threat of increased taxation is prominent. In this time of economic uncertainty, rising consumer prices would hit average Americans especially hard. There is much more I could say about the Fed, but suffice it to say that it decreases our standard of living by making it harder to buy consumer goods. If we do not return to a commodity standard, we may find ourselves flooded with pieces of paper that do not purchase what we need.