The Federal Reserve (the “Fed”) hit its 100th birthday today. On December 23, 1913, in response to the Knickerbocker Crisis, that saw stock prices fall almost 50% and numerous runs on banks and trust companies, President Woodrow Wilson signed the Federal Reserve Act into law. The purpose of the Fed was to prevent bank failures and future booms and busts in the business cycle. Unfortunately, history has shown the Fed to have a pretty dismal track record in achieving its intended purposes.
Since the Fed’s creation a century ago, the United States has experienced financial recessions and depressions that have been longer in duration and more severe in their pain than anything the nation experienced before 1913. Prior to the Fed, most recessions didn’t last more than a year; however, the Great Depression lasted well over a decade, “stagflation” gripped the nation from 1974-1982, and to date we still haven’t recovered fully from the financial crisis of 2008. The Fed certainly hasn’t experienced a reduction of bank failures during its watch, and during its tenure the purchasing power of the U.S. dollar has declined nearly 95%.
If failing at its original purposes wasn’t enough, the Federal Reserve Reform Act of 1977 granted the Fed three additional opportunities to come up short: maximize employment, stabilize prices, and moderate long-term interest rates. The current debate in Congress for continuing federal unemployment benefits demonstrates its inability to maximize employment, and the price of homes in America have been anything but stable over the last 15 years. Retired folks, who depend on investment income, are currently experiencing some of the lowest bond interest rates in history, effectively requiring them to invest in riskier investments or spend down their principal.
In spite of its expressed purposes, the Fed has caused more financial catastrophes than it has prevented or fixed. Whereas the U.S. Constitution grants Congress the power to coin money and regulate its value (Article I, Section 8) , there is no constitutional authority granted to the Fed, even though creating money out of thin air is essentially what the Fed has been doing for years.
Although the Federal Reserve turns 100 today, there is nothing to celebrate. This rogue institution has hurt more Americans than it has assisted, and it is time we consider returning the authority to control America’s money back to Congress where the authority rightfully belongs.