The Federal Reserve’s Mistake(s)

Recently there was a segment on CNBC Squawk Box with Peter Schiff (Euro-Pacific Capital) and Brian Wesbury (First Trust Advisors).

It was set up as a debate, though the two agreed on much about the causes of the U.S. economy’s problems. But while Wesbury says that the Federal Reserve “made a mistake” six years ago with interest rates that were too low, Schiff says that we’ve had Fed problems pretty much forever.

The Fed “made a mistake”. Wesbury’s phrase is the one I’m afraid to hear– the phrase that tends to pop up like a scared meerkat when there’s even a precursur thought for a question that could tap on central banking’s fortress:

“Hello? What if…”

“They made a mistake, o.k.? Anyone can make a mistake. Or rather, only Ben Bernanke can make a mistake, but now neither he nor anyone else can make one again, because we’ve learned so many lessons– millions of lessons in fact, since each of us has our own version of the lesson we’ve learned and the mistake we’ll never make again.”

“Hello?… Loose tight loose tight loose loose?”

“Shut up! It was a mistake!!”

The good news is, if we made that one mistake, all we have to do is not make it again. The bad news is that believing the good news is exactly why we may never plunge a wooden stake through this delusion. The Fed is an archetype for our desire to believe we can manipulate the world to have it all, skipping right past any helpless feelings or tough choices to tomorrow’s best sounding best case scenario.

With budget deficits including Social Security and Medicare running at four trillion dollars annually while political debate is about how much more to add to government obligations (should it be only a lot, or really, really a lot?), how likely is it that any central banker could ride a horse grown that big and not “make a mistake”?

In the unlikely event that some sunny day politicians can resist stretching the central piggy bank until “mistakes” are inevitably made, it would be an astonishing accomplishment that wouldn’t matter, because Austrian Business Cycle Theory malinvestment is waiting in the wings anyway. It seems more likely that ABCT is correct, rather than the assumed but never quite explained Fed Mistake Cycle Theory, where every time something blows up it actually would have been perfect if it wasn’t for another darn mistake showing up just when we didn’t need it the most.

Chairman Bernanke himself talked about “the mistake” that the Fed made to set off the Great Depression, a mistake he said we’d learned from and would never repeat. Now Bernanke’s becoming Mr. Made-A-Mistake in the eyes of many. That irony in itself seems like an indicator that in this system the mistakes are built in, and if a mistake has your name on it, don’t bother to run, it’ll find you.

By Les Lafave

Abolish The Federal Reserve –

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