Monday, May 12, 2008

Letter to Congressman Maurice Hinchey Concerning Federal Reserve Bank

PO Box 130
West Shokan, New York 12494
May 12, 2008

The Honorable Maurice Hinchey
2431 Rayburn H.O.B.
Washington, DC 20515

Dear Congressman Hinchey:

Congress should abolish the Federal Reserve Bank and replace it with choice among monetary alternatives. The Fed has proven to be incompetent to manage the nation’s money supply. Choice among competitive money supply alternatives would be preferable to the current system.

The inflation of the 1970s followed the abolition of the gold standard. Inflation led to high unemployment in the early 1980s. Since 1983, when the Fed resumed its inflationary posture, price increases have been more moderate than in the 1970s because (a) house prices have been excluded from the CPI and (b) foreign dollar holders have absorbed much of the inflation. Now there are 5-10 dollars held abroad for every dollar held in the US. Nevertheless, the inflation rate since 1979 has been over 3.5%.

There are at least five additional problems that suggest that the Federal Reserve Bank has been incompetent to manage the nation’s money supply and that choice among competing money supplies would be a preferable alternative. The five problems are (1) food shortages, (2) excessive home and asset prices, (3) income inequality (4) corruption and (5) the threat of hyper-inflation.

First, the Fed’s excessive stimulus (or in plain language, printing of money) over the past 25 years has caused excessive real estate development of farm land. In turn, the elimination of farm land makes the land unavailable for farming. This in turn has caused food shortages around the world, including the US. It is not much of a stretch to say that the Fed has murdered third world children now starving to death because of food shortages. There are now numerous reports of rationing here in the US as well.

Second, home and other asset prices are excessive. In West Shokan, I have enjoyed house price appreciation but new buyers cannot afford current prices. The banking system, responding to the Fed’s monetary expansion, made illegitimate low interest loans that inflated real estate prices in the 2000’s. Some of the loans have not been repaid, and the Fed's response is to print more money, keeping the bloated house prices high. The high real estate prices make it difficult for moderate income citizens to afford a home. Likewise, the high stock prices of the 1990s made it difficult for the baby boomers to plan for retirement. Believing that there would be twenty percent returns on the stock market, many boomers did not save sufficiently or lost their savings in the tech and Internet bubble.

Third, the Fed has caused the flattening of real wages and income inequality that have occurred since the 1970s. This flattening began soon after the final abolition of the gold standard in 1971. The flattening of real wages and income inequality are caused by inflation, a process that the economics profession denies is important. Their prescription, taxation, is irrelevant to the underlying problem.

The beneficiaries of the current Federal Reserve monopoly on the money supply are of course the commercial banks and Wall Street and the sycophantic economists who support them. Low interest rates due to monetary expansion (printing money) cause the stock market to rise. That is, monetary expansion causes both stock market increases and price inflation, hurting the middle class and poor. Thus, the Federal Reserve Bank is little more than a redistributive vehicle that redistributes from poor to rich, from wage earners to stock holders.

Fourth, the Fed’s policies have been the cause of the corruption scandals of the past 30 years. All of the major corruption scandals of the past 30 years, to include Drexel, Enron, and Bear Stearns, have occurred because of the Fed’s credit expansion, because of easy money. The scandals amount to transfer of wealth from the general public, whose dollars have been depreciated, to criminals like Ken Lay to whom the Fed and the banking system have granted access to artificially created Fed money. The notion that the banking system is intellectually or morally equipped to assess credit risks seems to be contradicted by the recent collapse of Bear Stearns and by Ben Bernanke’s willingness to print even more money to subsidize these and a long list of earlier crooks. How much corruption is enough for the Fed?

Fifth, the Fed has significantly expanded the global supply of dollars. Now, its expansionary policy has international political implications that the economists who run the Fed are ill-equipped to assess. A global run on the dollar which might occur due to ordinary market behavior would have disastrous consequences for the American people, who have already been victimized in several ways by the Fed’s incompetence.

It is evident from what I am saying that:

1. The American economics profession has been incompetent in analyzing money supply and economic issues. They have widely supported policies that have been economically destructive. Most importantly, they have silently watched excessive investment in real estate resulting in large scale human suffering. This is brutal incompetence indeed, and the Fed and the economics profession should be held to account.
2. The Federal Reserve Bank has supported bad ethics.
3. The Fed is responsible for wealth transfers from poor to rich; flattening real wages; economic dislocation; food shortages; starvation in the third world; and the threat of hyper-inflation here in the US.

I urge Congress to abolish the Federal Reserve Bank. It is an institution that has failed, that has made Americans poorer and has served as a poor-to-rich welfare transfer device.


Mitchell Langbert, Ph.D.

Cc: Senator Hillary Clinton; Senator Chuck Schumer, President Bush

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