Should
not this creature from Jekyll Island, for all its manifold crimes and
sins 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.
Fannie
and Freddie. The idiot-bankers. The AIG bonus babies. The Bush
Republicans and Barney Frank Democrats who bullied banks into making
mortgages to minorities who could not afford the houses they were
moving into.
But the Big Kahuna has escaped.
The Federal Reserve.
"(T)he very people who devised the policies that produced the mess
are now posing as the wise public servants who will show us the way
out," writes Thomas Woods in "Meltdown."
Already in its sixth week on the New York Times
best-seller list, this eminently readable book traces the Fed's role in
every financial crisis since this creature was spawned on Jekyl Island
in 1913.
The "forgotten depression" of 1920-21
was caused by a huge increase in the money supply for President
Wilson's war. When the Fed started to tighten at war's end, production
fell 20 percent from mid-1920 to mid-1921, far more than today.
Why did we not read about that depression?
Because
the much-maligned Warren Harding refused to intervene. He let
businesses and banks fail and prices fall. Hence, the fever quickly
broke, and we were off into "the Roaring Twenties."
But, the
Fed reverted, expanding the money supply by 55 percent, an average of
7.3 percent a year, not through an expansion of the currency, but
through 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.
Herbert
Hoover, contrary to the myth that he was a small-government
conservative, renounced laissez-faire, raised taxes, launched public
works projects, extended emergency loans to failing businesses and lent
money to the states for relief programs.
Hoover did what Obama is doing.
Indeed,
in 1932, FDR lacerated Hoover for having presided over the "greatest
spending administration in peacetime in all of history." His running
mate, John Nance Garner, accused Hoover of "leading the country down
the path to socialism." And "Cactus Jack" was right.
Terrified
of the bogeyman that causes Ben Bernanke sleepless nights -- deflation,
falling prices -- FDR ordered crops destroyed, pigs slaughtered, and
business cartels to cut production and fix prices.
FDR mistook
the consequences of the Depression -- falling prices -- for the cause
of the depression. But prices were simply returning to where they
belonged in a free market, the first step in any cure.
Obama is
repeating the failed policies of Hoover and FDR, by refusing to let
prices fall. Obama, with his intervention to prop up housing prices and
Bernanke with his gushers of money to bail out bankrupt banks and
businesses are creating a new bubble that will burst even more
spectacularly.
The biggest myth, writes Woods, is that it was World War II that ended the Great Depression. He quotes Paul Krugman:
"What
saved the economy and the New Deal was the enormous public works
project known as World War II, which finally provided a fiscal stimulus
adequate 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 another
into the armed forces, and their jobs taken by elderly men, women and
teenagers with little work experience, unemployment will fall.
But
how can an economy be truly growing 13 percent a year, as the
economists claim, when there is rationing, shortages everywhere,
declining product quality, an inability to buy homes and cars, and a
longer work week? When the cream of the labor force is in boot camps or
military bases, or storming beaches, sailing ships, flying planes and
marching with rifles, how can your real economy be booming?
It
was 1946, a year economists predicted would result in a postwar
depression because government spending fell by two-thirds, that proved
the biggest boom year in all of American history.
Why? Because
the real economy was producing what people wanted: cars, TVs, homes.
Businesses were responding to consumers, not the clamor of a government
run by dollar-a-year men who wanted planes, tanks, guns and ships to
blow things up.
"The Fed was the greatest single contributor to
the crisis that unfolds before us," Woods writes of today, and "more
dollars were created between 2000 and 2007 than in the rest of the
republic's history."
After 9-11, the Fed kept interest rates
low -- in one year as low as 1 percent. That money flooded into the
housing and stock markets. And in 2008, as the Fed tightened, the
bubble burst.
Now the money supply is again expanding, to
rescue us from a crisis created by the previous expansion. Of Nicholas
Biddle's Bank of the United States, the great Andrew Jackson was
eloquent.
"It has tried to kill me," he said. "But I will kill it." And he did.
Should
not this creature from Jekyl Island, for all its manifold crimes and
sins 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."
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