Abolishing the Fed

There are a lot of people that talk about abolishing the Federal Reserve System, especially on the right. It appears to be a fanciful idea, mainly because the Fed is a very well established part of our economy. It is also one of the more misunderstood parts of our government because of its shadowy nature.

Most people don’t even know that it exists. They see it on our paper currency and don’t realize what it means. The Federal Reserve System is made up of 12 banks scattered across the country. It is the United States central bank. It was made this way because the US public did not want a central bank, and this was the politicians way of hiding that fact.

It is also technically a private bank. This is because the constitution forbids this emittance of bills of credit (Article I Section 10). Very clever. The federal reserve creates for an average America a very serious problem. Inflation.

The Federal Reserve bank buys bonds from the US Treasury. The money is printed out of thin air. Just like the money we have earned through hard work, the federal reserve creates out of nothing. This significantly reduces the value of our hard work. Therein lies the problem. Our hard work is made to be worth less than it was the day before. Another way of saying that is inflation.

This creates a very real problem. Over the course of say 10 years with a modest 3% inflation compounded, our money has lost over a third of its value! Its simple math. How can someone retire with that much of their wealth being lost? They can’t, at least not without investing their money.

When you invest your money, your hoping to make money. In either case, your risking what you have saved in order to keep up with inflation. That risk can be very real. You are trusting someone else with your hard earned dollars to make you money, and he or she gets a fee. Ask anyone invested be Bernard Madoff if that isn’t a real risk.

The point of all of this is, if we didnt have a federal reserve and instead had a stable curreny, we wouldn’t have this problem. Some people would invest their money but some would also be able to keep their money in very safe cash or cash equivalents and not care that they’re making zero interest. Unfortunately that isn’t an option in today’s world, no matter where you have your money.