The Fed’s Real Agenda: Wealth Among the Ruins? by Charles Goyette

If they only make us poor enough, then we’ll all be better off … if they can only make the currency that we work for, earn, save, and buy things with, worth a lot less … then we’ll be better off.

But it’s the kind of logic one would expect from those who believe we can spend our way to prosperity.

That logic bequeathed us a mountain of unpayable debt. The logic of trying to create prosperity by destroying the value of the money will bestow on us a worthless currency.

I spoke with Congressman Ron Paul, chairman of the Domestic Monetary Policy subcommittee shortly after the Fed announced its new initiative, Quantitative Easing IV, last month. In the context of the Fiscal Cliff debate, Dr. Paul pointed out that the Fed’s monetary policies are enablers of congressional profligacy.

It’s an important observation. With QE IV, the Fed will purchase $45 billion of long-term U.S. Treasury issues a month. Couple that with QE III, in which the Fed is buying $40 billion a month in mortgage securities. Altogether the Fed is buying $85 billion a month, over $1 trillion a year in debt instruments.

If Congress can run trillion-dollar deficits and the Fed can cover it all by just running the printing presses in the basement that morning, why should Congress do anything different?

All the Fed asks in return is that it be protected from bothersome audits. It doesn’t want anyone peeking behind its curtains. The Congress agrees, and the Fed goes about its monetary madness.

With the announcement that it’s greeting the new year with yet another exercise in money-printing, QE IV, the Fed said in effect that QE I, QE II and QE III have failed to produce the result we expected, so let’s do it some more.

Most people, if they pay any attention to these things at all, trust that the Fed’s intentions with these policies are straight-forward … that they are derived from its dual mandate of maximum employment and stable prices.

According to the conventional view, the Fed is merely holding interest rates down, making borrowing affordable (too bad for savers) in hopes that business will borrow and grow and hire and all will be well.

But the Fed has been all about this zero interest rate policy now for four full years. It first announced a Fed Funds rate target of zero to 0.25 percent in December 2008.

And now, after four disappointing years of the interest rate policy that had such a spectacular record of failure in Japan, and after four years of serial monetary-easing initiatives, the Fed is committing to even more in 2013 and beyond.

In other words, the Fed is doing the same thing over and over and expecting different results. Is it really that insane?

Perhaps the Fed’s real objective is not what is widely believed. After all, four years is probably enough for even the most ideological Keynesians to have gotten the idea that its QE produces only diminishing returns.

But still it persists, suggesting that it has another objective. If zero interest rates aren’t enough to make business boom … if trillions in printing press money isn’t enough to spur a recovery … there is only one other possible objective.

The Fed’s real policy is to destroy the
purchasing power of the dollar.
Intentionally. By design.

Why? The Fed’s policy-makers must believe that, if only its policies can make the currency weak enough, America can export its way to recovery. We have only to decimate the dollar’s purchasing power, and the rest of the world will hasten to buy our dirt-cheap products as fast as we can make them.

It’s bad enough economics to begin with, because it means that everything Americans buy from overseas – little insignificant things like food and energy and the million-and-one other things we value that depend on products and resources from around the world – will cost much more.

Keep the destruction of the currency’s purchasing up long enough and, as former Reagan Treasury official Paul Craig Roberts said, hard-pressed Americans will go to Wal-Mart and think they have walked into Neiman Marcus instead.

Destroying the value of the currency is even worse economics when countries all over the world decide to embark on the same policy. The U.S. Federal Reserve is not the only temple of monetary magic where one finds these destructive ideas and fantasies promising more prosperity by making the people poor. Other central banks are charting the same course, actively devaluing their currencies for the same reasons.

Unfortunately, when all the world’s currencies are in a race to the bottom, they are all likely to get there.

Charles Goyette [send him mail] is the author of the New York Times bestseller The Dollar Meltdown. His new book is Red and Blue and Broke All Over: Restoring America’s Free Economy. He is also editor of Freedom & Prosperity Letter, a monthly political and financial newsletter dedicated to revealing the truth about the U.S.'s political scene and economic climate. To learn more, go here.