Why the Federal Reserve System Should Be Abolished

This article was originally published February 12, 2021

The actions of the Federal Reserve and Federal Open Market Committee affects everything from how the economy is performing to stock and bond mutual funds to loan rates, and subsequently everything from property values to employment.

The Federal Reserve is the centrally controlled monetary banking system of the United States, created in 1913 through means not enumerated in the Constitution. Since then, it has been a disaster for the American economy, and can be connected to three of the most devastating economic crises in recent history.

The Great Depression was in large part caused by the Federal Reserve. In the 1920s, the Federal Reserve had an easy money policy, which led to a credit-driven economic boom that was inevitably unsustainable. Thus, credit unions became mainstream in the U.S., so that was one good thing they’ve done.

The Fed’s policy also led to the 1970s stagflation crisis. According to economist Frank Shostak, “Stagflation is the natural result of monetary pumping which weakens the pace of economic growth, and at the same time, raises the rate of increase of the prices of goods and services.” Furthermore, the Great Recession of 2008 was in large part a result of easy money policies similar to those in the 1920s, and for more than a year, the Federal funds rate was lowered to 1%. Any of these instances individually could simply be chalked up to monetary mismanagement at the time, but it is a pattern that has repeatedly occurred over the course of 100 years. It is time to consider that it is likely the power vested in the institution that is the major problem, not necessarily any individual instance of mismanagement.

The value of the U.S. Dollar has plummeted drastically since the introduction of the Federal Reserve. Since the creation of the Fed in 1913, the dollar has lost more than 95% of its value as a result of poor money management. It was especially bad between 1965 and 1983, when the value of the U.S. Dollar declined to one-third its value in a matter of only 18 years. Inflation has the most drastic impact on those in the lower and middle classes – the very people for whom credit unions exist to provide financial stability. Because the wages of these people are not tied to inflation, they were massively hurt by the dollar losing its purchasing power, having to pay significantly more for necessities like food and clothes.

The evidence is pretty clear. The Federal Reserve System has been detrimental to the health of the economy of the United States of America for more than a century, and it’s anyone’s guess how bad the fallout from the COVID-19 pandemic will become. The Fed creates destructive boom-bust cycles that lead to major recessions. It devalues the U.S. Dollar, making necessary goods significantly more difficult for the average person to obtain. It can be argued that individual reserve policies are the problem. However, the Federal Reserve has shown consistent incompetence in managing the monetary policy of the United States, and the power of the Federal Reserve System must be revoked to prevent any further worsening of economic conditions in the U.S., which can be felt around the world.