In rebuttal: Don't end the Fed
By Patrick R. Wallace
Published: Saturday, Nov. 23, 2013, 9:00 p.m.
Regarding John Stossel's column to end the Federal Reserve Board (“End the Fed,” Nov. 3): Stossel ignores what the Fed is and the good points of what it has done.
As our first Treasury secretary, Alexander Hamilton, noted, all successful countries have a central or national bank. From the time of the Civil War to the start of the Fed, Americans could expect on average two years of economic growth interspersed with two years of contraction. Roughly 50 percent of the time the nation's economy was in a downturn.
From 1913, when the Federal Reserve was put into place, to the present, that figure has changed to roughly 20 percent of the time that the economy is in contraction. Additionally, with the exception of the 2008 recession, these events are further apart and less severe as time goes on.
Runs on banks were often caused by hoarding the currency of the day, gold. Without the elastic currency that can be created with a central bank, bank runs were a common occurrence just to continue business or not lose savings.
The bank runs of the Great Depression were panic reactions of the times. While Canada did not experience bank runs, European banks, which also were on the gold exchange standard, did experience runs.
It is also not correct to place the bubble blame squarely on the Fed. It didn't buy all the stocks or invest in anything Internet related during the tech bubble. The Fed did not decide that everyone should own a house or participate in the buying, selling or combining of mortgages or their derivatives. What Bernanke at the Federal Reserve and Henry Paulson at Treasury did was to salvage the Titanic-esque economic entities before they sank, taking the world's economic engines with them.
Unfortunately, the Fed is more reactionary than proactive in some of its policies, but it is better than central planning or the economic ups and downs of the golden age of the gold standard.
Patrick R. Wallace is president of Covington Investment Advisors Inc. of Ligonier.
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