Saturday, December 20, 2014

Why Federal Reserve Interest Rate Policy is a Form of Monetary Socialism

Richard Ebeling emails:
Dear Bob,

In this radio interview on "The Jerry Doyle" show on December 18, 2014, I explain why Federal Reserve interest rate policy is a form of "monetary socialism," in that manipulating interest rates down to near zero has basically undermined the existence of a functioning banking market.

Interest rates are the intertemporal prices that coordinate the choices of income earners to save with the investment decisions of entrepreneurs and enterprises to borrow. Interest rates are supposed to keep savings and investment in proper balance, and to determine which investments, with what time horizon, are market-based profitable.

By, basically, abolishing much of the price mechanism of an essential element of the financial markets, the Federal Reserve has introduced a high degree of economic irrationality into savings and investment decision-making.

We should not be surprised if the Federal Reserve's monetary central planning has led to a new round of misdirection of resources and labor, and mal-investment of capital that will result in a future economic downturn, when these mis-matches will have to be corrected and rebalanced.


1 comment:

  1. Since all parties' participation in the scheme is not voluntary, Monetary Fascism is a more apt term. The manipulation taxes the middle class and pushes the flow of money upward to politically connected cronies and the rentier class, while crushing everything below. "Fascism should more properly be called corporatism as it is the merger of state and corporate power." - Benito Mussolini