Jeff  Carter

Over the past several years the Federal Reserve has pushed down the value of the dollar. This has caused a lot of consternation, and enabled a political candidate, Ron Paul, to build a populist campaign around it. Paul wouldn’t exist without the actions of the Fed, and the economic falsehoods he peddles wouldn’t get any traction without them either.

The Gold standard….really? Take some time and learn about creation of money and the gold standard.

The value of a dollar is simply a price. It’s a price relative to the value the markets place on other currencies. Print too many dollars, and the price should move down all other things being equal. Start to pull those dollars back through monetary action, the value of the dollar should move up, all things being equal. The Fed, and the government don’t determine dollar value. The market does. It does a pretty good job of it too.

You can google “M3 money supply” and see lots of charts that show the amount of the US money supply has gone up significantly in the last twenty years. Gold bugs will tell you that’s a problem. However, it’s trickier than just looking at a chart and seeing growth, drawing a conclusion that “this is bad” or “good”. If underlying economic activity is robust, a larger money supply is the result. Banks need to create money to support that activity-so the amount of M3 isn’t troubling by itself.

What is troubling is the continued mismanagement of both the Federal Reserve and fiscal policy of government. That is contributing more to the decline of dollar value than anything else.

Government has put in place lots of roadblocks to growth. The Keystone pipeline was simply the latest instance of the kind of regulatory barrier government erects to stop economic activity. There are plenty of others. Of course, in the last three years the government has allowed some industries to flourish. There has been plenty of capital for non-productive entities in green energy like Solyndra. Prior to 2008, the government enacted policy that caused assets to flow into home construction. We pay a significant price for poor government policy. Bureaucrats are notoriously terrible at picking winners and losers no matter which political party is in charge.

The Fed has become reactionary over the past ten years. Instead of leading, it has become the agency that picks up the pieces. Because of it’s failure to lead, the market has lost confidence in the Federal Reserve’s ability to do anything. They are impotent.

Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.