Maxime Bernier versus the Federal Reserve

Former Minister of Industry Maxime Bernier has released a video where he talks about the danger of the QE2. He correctly identifies the Federal Reserve’s policies as a fundamental cause of the economic crisis, and he warns that the Fed’s current policy will only make things worse:

This monetary policy is now being criticized by more and more people, in the US as well as around the world. It should be obvious to everyone that printing money does not increase the quantity of goods and services and cannot make anybody richer.

This policy is the equivalent of a time bomb. For now, consumer price inflation stays relatively low because banks are keeping much of this new money in their reserves and not lending it. That does not prevent inflation in some areas. The prices of energy, metals and agricultural products are very much going up.

But at a certain point, the money kept in reserves will start circulating in the economy at large. When there is more money chasing the same number of goods, prices necessarily go up. We’re talking here not just about some more money, but about enormous amounts of money.

The Fed will then have two choices: either to let prices dangerously go up and the American dollar collapse; or else increase interest rates and take the surplus money out of the economy, which might provoke another crash.

The policies of the Federal Reserve have been a complete disaster from the beginning. A cursory look of the Fed’s history reveals consistent miscalculations and grievous errors. At the same time looking back over the same period we can see the solutions for how to move forward. In the words of Mr. Bernier:

Economics has taught us that to have sustainable growth, we need monetary stability and prudent economic policies that favour entrepreneurship and trade. But for many years now, western countries have tried on the contrary to produce wealth with more debt and more money created out of thin air. This is a recipe that has never worked and which may only prolong the crisis we are in.

We need to change direction, and the sooner the better.

The Federal Reserve must stop trying to play god with our money. There needs to be a realistic re-evaluation of what we expect central banks to accomplish. A utopian world of economic stability is simply not possible, and all that the Federal Reserve ever accomplishes is to put off the crash for another day.