Fed Governor Donald Kohn gave a speech in Germany today in which he stated - apparently with a straight face - this whopper:
"Price stability is our responsibility as central banks--it is how, in the long run, we contribute to society's welfare. Achieving and maintaining price stability will be more efficient and effective the better we understand the causes of inflation and the dynamics of how it evolves."
Well, just how good is the Fed at its stated job: price stability. Well, 92 years is a long history for any institution, so we could, I suppose, expect a variable track record. Perhaps they had some good governors who kept price changes to a minimum and others who, not being as smart or lucky, didn't have the facility of their predecessors.
Well, let's see Governor Kohn. If we had $1 in 1913 when the Federal Reserve Act was established, what would its equivalent be today? Well, it's a fairly simple calculation: just multiple that dollar by the CPI every year from 1913 to now. What do you get? $19.66.
So under the benevolent auspices of the Federal Reserve we have seen the value of $1 decline by 94.9%. Is this the type of price stability you were speaking of Governor Kohn? One in which the currency under your management decreases in value by 95%? And to further claim that ANY understanding of inflation is going to provide you with better policy tools with which to maintain price stability is not only a extraordinary ignorance of the historical experience, it is a lie to boot.
In February of 1924, The New York Times said: "It has been the habit of our people to speak of the enactment of the Federal Reserve law in December, 1913, as a piece of good luck for the country. 'Luck' it certainly was, when considered in the light of the possibility that without it the United States might have been swept along with Europe into depreciated paper money." *
Yeah; thank goodness we didn't get swept into any of that "depreciated paper money". And thank goodness too we have such munificent bankers who are constantly looking out for society's welfare.
With friends like these...
* Ray Baker. Woodrow Wilson: Life and Letters. Vol. 3. New York: Charles Scribner's Sons, 1946.
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