mises.org / Robert L. Luddy / April 17, 2017
The Federal Reserve Bank, also known as “The Fed,” was created in 1913 to regulate the banks and to ensure a stable dollar.
The Fed has strayed from its initial charter and is now the primary enabler of federal deficit spending and debt, which is now almost $20 trillion. The Fed’s primary tool is low interest rates, which distort financial decisions and expand the money supply, which leads to risky economic choices.
The Fed has created an additional intervention — purchasing debt instruments. These purchases have expanded the Fed’s balance sheet to almost $4 trillion, a major market distortion. Some economists justify these interventions as necessary during times of crisis but, in the long run, Fed actions lead to inflation and massive federal debt, which will, if not corrected, lead to another financial crisis.
Ultra-low interest rates allow the federal government to borrow at will without having to pay market interest rates. If rates begin to rise, interest cost for the government will dramatically increase the yearly deficit.