So Many Anarchists Have an Overblown Sense of Fed Power

I'm really glad that Ron Paul put the Fed on people's radar. I think, like all government institutions, it needs to go. Yes, it is a government institution too. Yet, anarchists often make grandiose claims about the power that it has. I often hear things like, taxation is not needed because the government can steal more using inflation than they can through taxation. Sometimes the claim is that they already steal more this way than through taxation; that taxation is just a small part. None of this is true.

Both logic an evidence can take this inflated idea of Fed power down a notch.

Let's go with the logic first. Everyone, in this movement, knows that printing money is inflationary and that printing lots of it is hyperinflationary. If the Fed were to print enough money to fund the government, we would have hyperinflation and the value of what it is printing would go to zero. If the Fed is printing worthless currency, then it's spending power is also worthless and therefore the power of the Fed itself is worthless. This has happened many times, throughout the world, over the last 100 years.

Let's look at what the Fed has actually done. Today, the Fed balance sheet is $4.17 trillion. What does that mean? It means that is the sum total of all of the assets it holds. Most of these are government debt securities but some are private ones as well. To buy these debt instruments, the Fed creates money out of thin air. It inflates. This is where our fiat money comes from. So, the Fed has created $4.17 trillion since 1913. It's created $4.17 trillion in 105 years.

During that 105 years, we had the inflation event of the 1970s which clearly showed the Fed has limits. High inflation can hit the US. The Fed responded by contracting its balance sheet in the 1980s to stop the inflation. 96% of the value of the dolar was destroyed over that 105 years but because it happened slowly, the dollar never really became worthless. The Fed knows it has limits.

Now let's look at what $4.17 trillion means, in terms of government power. This year, the federal budget is $4.094 trillion. This number, this spending for one year, is just under what the Fed has crated in 105 years. If you add in state and local spending, the Fed can create in 105 years, less money than the government can spend in one year. If it goes over that rate, for any length of time, the currency is destroyed and the Fed power with it.

This is why the Fed has been destroying currency since Q4, 2017. The Fed has been deflating for a year straight. A year before then, they stopped inflating. They plan to continue deflating until the economy breaks. The break will come about because when the Fed destroys currency, it does so by letting debt instruments mature. The Federal government (and other borrowers) must pay the Fed back for the loan and then borrow the money in the market if they wish to stay in debt.

This is what is driving up interest rates. Also, the lower tax rates from the Trump administration were not accompanied with spending cuts. This just shifts the method of hoovering money out of the economy from taxation to borrowing. Every dollar the government borrows is a dollar your and your business cannot borrow. The market responds by raising interest rates until you and your business borrow less and / or savers lend more.

If we were to end taxation but not end the Fed, the federal government would be about 1% of what it is now. If we were to end the Fed without ending taxation, the federal government would lose some of its power to go on temporary spending orgies but would otherwise remain intact. I'd take ending taxation over ending the Fed any day of the week.