Richmond Fed on Fractional Reserve Banking: And the Largest Cojones of the Year Award Goes to... RFRB!
Several months ago, Richmond Federal Reserve President Jeffrey Lacker first appeared on my radar. We had the private Fed, we had deceptive Fed tactics, and we had the questionable position of our favorite central bank dictating the comings and goings of our increasingly distraught economy in the heady days of Bernaulson on Capitol Hill begging for TARP. And of course we had the Board of Governors in D.C. pushing for quantitative easing and a monetary policy which led to little more than dollar debasement on the Fed's watch. And then we had Jeffrey Lacker, who appeared to be the sole voice of reason in the murky smoke and mirrors of the entire Federal Reserve System; a canary in the coal mine? Or a genius stuck in a school of complete idiots standing by as the world economic system went plummeting towards absolute ruin? What can one man possibly do? FOMC vote or not, it takes a lot to overcome nearly 100 years of ass-backwards, ignorant economic "reason" at the Fed's table.
Gentle Ben (Zimbabwe Ben as he is known amongst the Austrian school) trained his entire life for a crisis of this magnitude but finds himself entirely unprepared in the face of total economic failure. So which direction does our darling Dr. Bernanke turn? That which has been dictated by his keepers. Print the money, bail out the Wall Street Mafia, don't ask questions. The free market has been murdered on the Fed's floor and Bernanke can do little but say "oops! sorry!" and keep cranking out the funny money.
Months ago, before I started Jr Deputy Accountant and started crawling further down the Fed rabbit hole, I might have been lost on the concept of "Fed independence" or even the intimacies of the regional Fed banks. Richard Fisher? Skeezy. Eric Rosengren? Square. Janet Yellen? A moron. Did I know any of this when I started this little project? No. Hell, I barely realized that the Creature from Jekyll Island consisted of much more than the worthless FRNs swelling in my back pocket on payday. Surely I was not the only American who confused an image of Fort Knox with the obscure Fed - the system is designed as such and no one is supposed to understand. As G. Edward Griffin points out in his epoch on the Creature, it is so simple that we are not supposed to understand. Having dated a Fed employee once upon a time, I assure you that even their own people are misguided to say the least. And that is exactly how they want it to be. Do not delude yourself into thinking otherwise.
Richmond Fed has always stood out to me, even before the days when I languished over Fed speeches and FOMC minutes and strange tales of Alan Greenspan evangelizing the benefits of a gold standard. Might I be so bold as to remind you, dear reader, that the homicidal maniac who created the greatest unsustainable bubble of all time once said "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves."
Oh Alan, where did you lose your way? "Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
The poetry of economic sanity is now lost among Goldman Sachs' market manipulation, China's raging gold habit, and an ever-weakening dollar.
I assure you, dear reader, that not all is lost. Though it may appear so on the surface, not all of the war against economic sanity's soldiers are so transfixed by their own central banker code that they themselves cannot comprehend their own lies. Trust me on this one. If I ever believed one of the bunch could press for economic clarity, Richmond's Lacker is it. I joke with MS Paint pics and declarations of "I love you, Jeffrey Lacker! SAVE US!" but what I mean to say is that if ever a sane mind existed in the sea of propaganda and central banker code, Lacker and Richmond are it.
1 out of 12 ain't so bad after all.
Proof of this lies in Richmond's own publications. Who of the Federal Reserve System in their right mind would publish a piece like George Selgin's recent article on the farce of fractional reserve banking knowing that this might mean their end? Richmond, that's who.
I have not switched sides. I am still adamantly opposed to the Fed as a whole. But a glimmer of hope isn't such a bad thing, is it?
Richmond gets it. If only "getting it" were enough to topple the Board's insistence that we fully debase the dollar on the way down...
RFRB's article starts out with a bang saying "To many, the idea that an economy can function without a central bank to issue currency or serve as a lender of last resort will seem bizarre. To economist George Selgin, the idea is one that needs to be taken more seriously." Whazzat? Am I really on a member of the Federal Reserve System's website?!
Arguably, Selgin is lost in the anti-Austrian argument, implying that we are incorrect to direct our frustrations at the fractional reserve system as a large part of the problem. But beyond that small discrepancy, and as much as I as a Fedwatcher and known End the Fed strategist hate to admit, he is right. More astonishingly, a Federal Reserve bank published such truths on its own site.
Richmond! WTF are you doing?!
"I think a distinction needs to be made between the banking regime on the one hand and the monetary base regime on the other," says Selgin when evangelizing his "free banking" concept. The Federal Reserve System as a whole would do well to listen to its colleagues at Richmond when President Lacker insists on the importance of Fed independence - lest the Fed forget its ultimate goal. It may be there to rob wealth via the most insidious tax of all (inflation) or expand the money supply in the same fashion using its questionable position at the top of the economic food chain but the reality remains that it has thus far enjoyed some level of independence from the wonky politics of D.C.
No longer. Those days have passed for the Fed, though surely I imagine President Lacker (and a handful of his smarter colleagues) understand what this means for their organization and for the economic framework of the United States as a whole.
"What I just described is exactly the sort of thing that triggered many of the financial crises of the 19th century. The irony is that people now see these periodic crises, especially in England, as proving the need for a central bank and a lender of last resort. Walter Bagehot, on the other hand, recognized that the boom-and-bust cycles were a product of a monopoly in currency issuance," says Selgin. What?!
Listen, Jeffrey Lacker, I am not kidding. We need you. I joke about being in <3 with you but I mean it, you might be our last hope in the fight for the dollar.
Jr's thoughts on JL may be found: here, here, and here (don't miss my exceptional MS Paint skills on that one)
Save us, Jeffrey Lacker. And I mean that this time.
Disclaimer: none. Jeffrey Lacker is just awesome and that's that.