Kenneth D. Gartrell

By: Kenneth D. Gartrell

Today’s Washington Post carries a shocking article about the growth in the powers of the Federal Reserve System. This trend is real, but not new. The Fed began injecting itself in overall economic activity with a unilateral assault on the NASDAQ under Greenspan in 1999. Those efforts to squeeze liquidity from the markets have come full circle so that we now see that the FED is definitely not the solution to our problems. It is the PROBLEM.

If we sit back and think about it, all of the recent financial problems stem from shifts in liquidity. When the Fed attacked the NASDAQ in 1999 through 2001, it chased billions of dollars of liquidity out of the NASDAQ growth boom and it created a climate where large corporations sat on mountains of short term cash rather than investing in emerging information technology. When all is said and done, it was this reservoir of liquidity that then showed up in the innovative mortgage markets. Securitization of variable rate mortgages tapped the reservoir of liquidity and allowed home buyers to go long in real estate.

Made nervous by the bid up in housing prices, just as was the case in the NASDAQ, the Fed went into a panic and a second round of unwarranted interest rate squeezes were imposed on the economy.

None of this had to happen. The FED would have done all of us a great favor to leave the markets well enough alone. So today instead of dramatic growth fueled by exponentially improving technology in information, medicine and finance, we are victims of a FED policy that only promises to get worse and worse.

The FED not only trampled the growth in the economy in 2001 and so on, but the chaos it created produced a raft of unwarranted regulations that is driving more and more US companies private and offshore. The consequence of this is a weaker dollar and more instability.

Read more: Fed’s Crisis Role Spurs Questions of Overreach