Federal Reserve: Monopoly or Lender of Last Resort? #651-2
March 25, 2014No Comments
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In this second segment of the on-going series, B. Scott Minerd, Global Chief Investment Officer of Guggenheim Partners describes the Federal Reserve as a novel concept in being a marginal provider of liquidity in times of crisis, such as the 1907 financial panic of skyrocketing interest rates. He credits the Federal Reserve’s original guidelines to print money, purchase gold, or purchase short-term, self-liquidating bills of trade until the 1930s, when it was granted emergency powers to purchase U.S. Treasury securities as a result of the Great Depression. Minerd states that today, Treasury securities are the number one holding of the Federal Reserve, and a temporary solution has become a permanent fix. G. Edward Griffin, author of “The Creature From Jekyll Island” considers the fiat money, with no precious metals to back it, an insidious tax on the public. His complaint is that to moderate to deflation/inflation cycles, Congress took the wrong approach by allowing the states to print more fiat money with no reserves to back it up. Minerd explains that by creating additional credit to allow the U.S. government to finance World War I, inflation spiked at an unacceptable high by 1920. The Federal Reserve then started processing disinflation for the next decade, and Minerd posits that was arguably and ultimately the part of the issue that created the Great Depression.